Internal rate of return (IRR) indicator evaluation Calculation method of internal rate of return. According to the definition of internal return, we can get from formula (1): i‘ in the formula is the internal rate of return (IRR), and the other symbols are the same as before. Calculating the internal rate of return i' by solving the high-order equation above is very complicated. The "trial interpolation method" is usually used to find the approximate value of i'. The formula for calculating the value of i' by linear interpolation is: where: i' is the internal rate of return required; i1 is the low discount rate; i2 is the high discount rate; NPV1 is the net present value of the low discount rate; NPV2 is the high discount rate Net present value. (2) The first part of the plus sign in the formula is the percentage of an integer, and the following part is the decimal percentage. NPV1 and NPV2 are the addition of absolute values. It is generally believed that when the difference between i1 and i2 is less than 2%, the calculated i‘ error is small. As far as a single plan is concerned, when the internal rate of return i' of investing in a patented technology solution is greater than the benchmark discount rate i0, the plan is economically feasible; on the contrary, i' Example 3 It is known that a company has invested in a patented technology project for 12 years. Using discount rates of 15%, 16%, and 17%, the net present value is 46.4, 16.1, and -17.3 (ten thousand yuan) respectively. The internal income when using 16% and 17% is 3.21 and 3.46 (ten thousand yuan) respectively. . If the benchmark rate of return specified by the project authority is 15%, is this patented technology investment feasible? Solution: According to the known facts, using a 15% discount rate for discounting, the net present value is 464,000 yuan, which shows that the internal The rate of return is higher than 15%, so when calculating the internal rate of return, a discount rate higher than 15% should be used. It is known that 16% and 17% are used for rediscounting respectively. The result is: the net present value of 16% is 161,000 yuan; the net present value of 17% is -173,000 yuan. This shows that the internal rate of return is between 16% and 17%. According to the known formula (2), the internal rate of return of this project can be calculated: The calculation shows that the internal rate of return of this patented technology project is 16.48%, which is greater than the benchmark rate of return of 15%, indicating that the economic benefits of the patented technology exceed the regulations The benchmark income level makes investment feasible. Advantages and Disadvantages of the Internal Rate of Return Metric. Advantages: Internal rate of return (%) evaluates the investment effect and can intuitively and clearly explain the profitability of investment or excess investment throughout the economic life cycle. Comparing the IRR and NPV indicators, the IRR value of the project can be calculated without determining the benchmark discount rate in advance. Disadvantages: The calculation is complex and multiple solutions may occur, so NPV or other indicators need to be used for evaluation. The size of IRR is related to the amount of investment in patented technology, so the total profit target must be considered. The IRR value of a project is inherent to the project and has nothing to do with other investment projects. It is inappropriate to select the best among multiple projects.