• 산업경영시스템학회지
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• 제45권4호
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• pp.167-173
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• 2022

Investors must adopt profitable investment opportunities to maximize their wealth. Almost all investment, finance, engineering economics textbooks explain that net present value (NPV) measures the profitability (or value) of investment opportunities in absolute size, and internal rate of return (IRR) measures the profitability of investment opportunities in relative proportions. However, NPV is a measure of the relative size of the return on investment opportunity to do-nothing alternative. Moreover, IRR can occur in multiple investment opportunities and may not exist. To make matters worse, IRR and NPV also have conflicting problems in accept-or-reject decisions. In this study, the reason why NPV and IRR cannot accurately measure the profitability of investment opportunities is identified, and fundamental characteristics that investment opportunity profitability measures should have are presented.

• 산업경영시스템학회지
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• 제25권5호
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• pp.9-14
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• 2002

A capital investment problem is essentially one of determining whether the anticipated cash inflows from a proposed project are sufficiently attractive to invest funds in the project. The net present value(NPV) criterion and internal rate of return(IRR) criterion are widely used as means of making investment decisions. A positive NPV means the equivalent worth of the inflows is greater than the equivalent worth of outflows, so, the project makes profit. Business people are familiar with rates of return because they all borrow money to finance ventures, even if the money they borrow is their own. Thus they are apt to use the IRR in preference to the NPV. The IRR can be defined as the discount rate that causes the net present value of a cash flow to equal zero. Why the project are accepted if the project's IRR is greater than the investor's minimum attractive rate of return\ulcorner Against the NPV, the definition cannot distinctly explain the concept of the IRR as decision criterion. We present a new definition of the IRR as the ratio of profit on the invested capital.

• 산업경영시스템학회지
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• 제40권1호
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• pp.50-56
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• 2017

The IRR (internal rate of return) is often used by investors for the evaluation of engineering projects. Unfortunately, it is widely known that it has serial flaws. Also, External rate of returns (ERRs) such as ARR (Average Rate of Return) or MIRR (MIRR, Modified Internal Rate of Return) do not differentiate between the real investment and the expenditure. The PRR (Productive rate of return) is faithful to the conception of the return on investment. The PRR uses the effective investment instead of the initial investment. In this paper, we examined two cases of the engineering project. the one is a traditional engineering project with financing activity, another is the project with R&D. Although the IRR has only one value, it overestimates or underestimate profitabilities of Engineering Projects. The ARR and the MARR assume that a returned cash reinvest other projects or assets instead of the project currently executing. Thus they are only one value of a project's profitability, unlike the IRR. But the ARR does not classify into the effective investment and non-investment expenditure. It only accepts an initial expenditure as for an investment. The MIRR also fails to classify into the investment and the expenditure. It has an error of making a loss down as the investment. The IRR works as efficiently as a NPW (Net Present Worth). It clearly expresses a rate of return in respect of an investment in an engineering project with a loan. And it shows its ability in an engineering project with a R&D investment.

• 산업경영시스템학회지
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• 제31권3호
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• pp.74-79
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• 2008

The reinvestment assumption of the internal rate of return(IRR) method may not be valid in an engineering economy study. This situation, coupled with the computational demands and possible multiple interest rate associated with the IRR method, has given rise to other rate of return methods, such as the external rate of return(ERR) method, that can remedy some of these weaknesses. But ERRs are not used generally. We present another rate of return including all attributes of the minimum attractive rate of return(MARR).

• Industrial Engineering and Management Systems
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• 제9권2호
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• pp.121-130
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• 2010

In today's uncertain economic environment, economic risk is inherent in making large investments on manufacturing facilities. It is, therefore, practically meaningful to divide investment over multiple periods, reducing the risk of investment. Then, the cash-flow over the entire planning horizon would comprise positive inflow and negative outflow. In this case, in general, evaluation by internal rate of return (IRR) is not feasible, because multiple IRRs are involved. This paper deals with a problem of evaluating profitability, as well as risk, of investment alternatives made in multiple times of investment over the entire horizon. Typically, an additional investment is required after the initial one, for expanding manufacturing capacity or other reasons. The paper pays attention to a unit cash-flow over two periods, decomposing the total cash-flow into a series of unit cash-flow patterns. It is easy to evaluate profitability of a unit cash-flow by using IRR. The total cash-flow can be decomposed into the series of two types of unit cash-flows: an investment type one (negative-positive) and the borrowing type one (positive-negative). This paper, therefore, proposes a method in which only the borrowing type unit cash-flow is eliminated in the series by converting total cash-flow using capital interest rate. Then, a unique IRR can be obtained and the profitability is evaluated. Thus, the paper extends the method of IRR so that it may help decision making in complicated cash-flow pattern observed in practice.

• 한국산업경영시스템학회:학술대회논문집
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• 한국산업경영시스템학회 2002년도 춘계학술대회
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• pp.9-18
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• 2002

A capital investment problem is essentially one of determining whether the anticipated cash Inflows from a proposed project are sufficiently attractive to invest funds in the project. The net present value(NPV) criterion and internal rate of return(IRR) criterion are widely used as means of making investment decisions. A positive NPV means the equivalent worth of the inflows is greater than the equivalent worth of outflows, so, the project makes profit. Business people are familiar with rates of return because they all borrow money to finance ventures, even If the money they borrow is their own. Thus they are apt to use the IRR in preference to the NPV. The IRR can be defined as the discount rate that causes the net present value of a cash flow to equal zero. Why the project are accepted if the project's IRR is greater than the investor's minimum attractive rate of return. Against the NPV, the definition cannot distinctly explain the concept of the IRR as decision criterion. We present a new definition of the IRR as the ratio of profit on the invested capital.

• 국제학술발표논문집
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• The 5th International Conference on Construction Engineering and Project Management
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• pp.602-607
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• 2013

Financial risks associated with capital investments are often measured with different feasibility indicators such as the net present value (NPV), the internal rate of return (IRR), the payback period (PBP), and the benefit-cost ratio (BCR). This paper aims at demonstrating practical applications of probabilistic feasibility analysis techniques for an integrated feasibility evaluation of the IRR and PBP. The IRR and PBP are concurrently analyzed in order to measure the profitability and liquidity, respectively, of a cash flow. The cash flow data of a real wind turbine project is used in the study. The presented approach consists of two phases. First, two newly reported analysis techniques are used to carry out a series of what-if analyses for the IRR and PBP. Second, the relationship between the IRR and PBP is identified using Monte Carlo simulation. The results demonstrate that the integrated feasibility evaluation of stochastic cash flows becomes a more viable option with the aide of newly developed probabilistic analysis techniques. It is also shown that the relationship between the IRR and PBP for the wind turbine project can be used as a predictive model for the actual IRR at the end of the service life based on the actual PBP of the project early in the service life.

• 한국산림과학회지
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• 제100권4호
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• pp.585-590
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• 2011

이 연구의 목적은 고로쇠나무 재배의 수익성을 분석함으로써 산주가 고로쇠나무 재배의 투자여부에 대한 판단 근거를 제시하는데 있다. 이를 위해 고로쇠나무를 집약재배하고 있는 임가를 대상으로 수령별 본당 수액 생산량을 조사하였고, 조림에서부터 모두베기까지의 각 작업공정별 투입비용 및 수액생산비용을 산정하였다. 수입액은 생산한 수액 판매와 솎아베기 및 모두베기를 통한 생산물 판매액의 합으로 추정하였다. 한편, 수익성 분석 기법으로 대표적 투자판단의 지표인 내부투자수익률(IRR: Internal Rate of Return)과 순현재가치(NPV: Net Present Value)를 활용하였으며, 할인율 3%를 적용하여 분석한 결과 순현재가치는 59,436천원으로 나타났다. 이때 내부투자수익률은 9.22%로 기준한 할인율인 3%보다 높아 고로쇠나무 재배는 수익성이 있는 것으로 나타났다.

• Journal of Forest and Environmental Science
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• 제34권4호
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• pp.352-358
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• 2018

This research paper investigates available options for implementing clean development mechanism (CDM) project in Sarawak state, Malaysia. To investigate economic feasibility, data was collected using survey and field research methods. Also, economic analysis was estimated using net present value (NPV), internal rate of return (IRR) and payback period (PBP) during the 30 years CDM: afforestation and reforestation periods. The result of economic analysis indicated that, the payback period was estimated at 9 years with 18 percent of internal rate of return (IRR). This study also highlighted that CDM biomass supply project have a lot of challenges due to the reduction and exclusion of bio-Solid Recovered Fuel (SRF), supply and demand scenario, and impact of restriction of illegal logging in Malaysia. This study results demonstrate the methodology and guideline for future CDM investment and projects.

• Korean Chemical Engineering Research
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• 제52권3호
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• pp.347-354
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• 2014

본 연구에서는 연소 배가스 중에 포함된 이산화탄소의 탄산화 반응을 통한 고부가화합물 제조기술의 경제성평가를 수행하고 화합물 생산 계획에 따른 이익 및 내부수익률(Internal Rate of Return, IRR)을 분석하였다. 본 연구에서 고려된 기술을 이용하면 발전소에서 발생되는 연소배가스 중의 이산화탄소와 전기분해를 통해 발생되는 가성소다와의 탄산화 반응을 통해 고부가화합물(중탄산나트륨, $NaHCO_3$)의 생산 및 이산화탄소의 저감이 동시에 가능하다. 또한 전기분해에서 생산되는 염소 및 수소 가스는 다시 차아염소산나트륨(NaOCl) 및 고순도 염산의 제조에 적용된다. 기술의 경제성 평가를 위한 방법으로는 순현재가치법(Net Present Value method, NPV) 및 내부수익률(Internal Rate of Return, IRR)을 활용하여 일일 100톤의 이산화탄소를 처리할 수 있는 공정을 대상으로 20년간 상업운전을 가정하였다. 상기 가정하에서 20년간의 내부수익률은 약 67.2%, 20년간의 운전기간을 통한 총 이익은 순현가 기준으로 약 346,922 백만원으로 산출되었다. 그리고 2015년부터 시행예정인 탄소배출권 거래가 활성됨에 따른 ETS 수익을 고려할 경우 총이익은 약 60억원 향상되는 것으로 분석이 되었다. 상기 분석을 살펴보면 이산화탄소의 탄산화 반응을 통한 고부가화합물 제조기술은 온실가스 저감효과를 가져올 뿐만 아니라 경제성이 뛰어난 것으로 생각된다.