Presenting a mathematical approach to developing the internal rate of Return method: An application of Horner's theorem in econometrics

Economics is the development of a collection of Mathematical Methods(MMs) for the economic evaluation of investment projects or plans. Two main methods for this type of valuation are the internal rate of return method and the present value method. For various reasons, directors and investors are more likely to use the Internal Rate of Return(IRR) method, even though the present value method produces trustworthy results. This is the case if using the internal rate of return method presents significant problems. In recent years, numerous articles have been published to address the problems with this method. It is safe to say that much of this work is based on Hazen's method. The current study aims to illustrate Hazen's strategy using Horner's method in a simple way that ultimately leads to fewer calculations.If a financial project presents a negative rate of return or multiple rates of return(whether negative or positive), it can confuse decision-makers and hinder their ability to make effective choices. This study introduces a new approach that, rather than focusing solely on a single rate of return, considers two different indicators: a rate of return and virtual cash flow. This approach aids in making sound decisions.The approach proposed in this study comprises several math theorems, which provide a simpler and more understandable process than the Hazen Approach(HA). Also, a Decision Tree(DT) has been presented in the proposed approach that can be used to determine whether the financial project under evaluation is profitable or unprofitable.

کلیدواژه ها:

Engineering Economics ، Horner's Theorem ، NPV ، IRR ، Project Analysis