Open Access Open Access  Restricted Access Subscription or Fee Access

Improvements on Secant Method for Estimating Internal Rate of Return (IRR)

James Matthew Moten Jr., Chris Thron

Abstract


Various capital budgeting methods are used by firms to decide which projects to undertake. One of the most common methods is the Internal Rate of Return (IRR) method. IRR does not have a straightforward formula, and requires finding a root of a complicated polynomial. Financial calculators are pre-programmed to calculate IRR, but hand calculation presents a challenge. The secant method is frequently used to estimate IRR by hand, but laborious calculations are frequently required to obtain accurate estimates. Furthermore, the secant method does not provide an uncertainty for the computed estimate. The exponential interpolation and corrected secant formulas described in this paper obtain more accurate results with less effort than the secant method, and can be used for hand calculation of IRR or for programming if highly efficient machine computation of IRR is required. The corrected secant method also provides an estimate of the uncertainty.

Keywords


Internal Rate of Return, Net Present Value, Financial Estimators, Confidence Intervals

Full Text:

PDF


Disclaimer/Regarding indexing issue:

We have provided the online access of all issues and papers to the indexing agencies (as given on journal web site). It’s depend on indexing agencies when, how and what manner they can index or not. Hence, we like to inform that on the basis of earlier indexing, we can’t predict the today or future indexing policy of third party (i.e. indexing agencies) as they have right to discontinue any journal at any time without prior information to the journal. So, please neither sends any question nor expects any answer from us on the behalf of third party i.e. indexing agencies.Hence, we will not issue any certificate or letter for indexing issue. Our role is just to provide the online access to them. So we do properly this and one can visit indexing agencies website to get the authentic information. Also: DOI is paid service which provided by a third party. We never mentioned that we go for this for our any journal. However, journal have no objection if author go directly for this paid DOI service.