INVESTMENT DECISION BASED ON ANALYSIS OF MATHEMATICAL INTERRELATION BETWEEN CRITERIA IRR, MIRR, PI

Abstract

Analysis of the advantages and disadvantages of indicators of the internal rate of return and the modified internal rate of return as criteria for the effectiveness of an investment project. The mathematical and graphic apparatus for studying the functions and dependencies between the economic characteristics of future financial and production activities of entrepreneurial activity was used in the process of the analysis of the most important indicators of the effectiveness of the investment project. The characteristics of the criterion of the internal rate of return are studied on the basis of the properties of the function which describes the dependence of the net present value of the project on the value of the discount rate. The main advantages of the modified internal rate of return in comparison with its unmodified analogue are revealed. The inequalities between the indicated indicators are mathematically proved, their influence on the stability (safety) characteristics of the investment project is analyzed, and the interrelation of the criterion of the modified internal rate of return with the value of the profitability index is shown. The scientific novelty consists in the mathematical proof of the interrelation between the indicators of the internal rate of return and the modified internal rate of return, as well as the interrelation between the criterion of the modified internal rate of return and the profitability index of the investment project. Theoretical conclusions and suggestions can be used in the investment analysis of future financial and production projects in the domestic economy, which opens up the possibilities of rational use of resources in entrepreneurial activity at all levels of business process management.

Keywords

• investment project
• profitability index
• net present value
• non-ordinary cash flow
• investment