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  • The External Rate of Return Method

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    Ellen Kay Cacatian
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    The External Rate of Return (ERR) method directly takes into account the interest rate external to a project at which net cash flows can be reinvested or borrowed. It involves three steps: 1) discounting net cash outflows to the present, 2) compounding net cash inflows to the end period, and 3) determining the ERR. If the ERR equals the minimum acceptable rate of return (MARR), the project is economically justified.

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    The External Rate of Return (ERR) method directly takes into account the interest rate external to a project at which net cash flows can be reinvested or borrowed. It involves three steps: 1) discounting net cash outflows to the present, 2) compounding net cash inflows to the end period, and 3) determining the ERR. If the ERR equals the minimum acceptable rate of return (MARR), the project is economically justified.

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    Attribution Non-Commercial (BY-NC)
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    Markieren Sie unangemessene Inhalte
    15K Ansichten5 Seiten

    The External Rate of Return Method

    Hochgeladen von

    Ellen Kay Cacatian
    The External Rate of Return (ERR) method directly takes into account the interest rate external to a project at which net cash flows can be reinvested or borrowed. It involves three steps: 1) discounting net cash outflows to the present, 2) compounding net cash inflows to the end period, and 3) determining the ERR. If the ERR equals the minimum acceptable rate of return (MARR), the project is economically justified.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als PPTX, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 5

    The External Rate of Return Method

    Rodelas, Jessa Marie M. MSE40

    External Rate of Return Method


    ERR method directly takes into account the interest rate ( ) external to a project at which net cash flows generated or required by the project over its life can be reinvested or borrowed. If ERR=IRR, then the ERR method produces results identical to those IRR method. If ERR MARR, the project is economically justified.

    Three steps in calculating ERR


    1. All net cash outflows are discounted to time zero (the present) at % per compounding series. 2. All net cash inflows are compounded to period N at %. 3. Determine ERR.

    Formula in getting ERR

    Graphical Interpretation

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