Development of Internal Rate of Return (IRR) Calculator

Abstract

The analytical determination of internal rate of return (IRR) is
computationally demanding and the computational labour tends to be
compounded as the project life becomes longer. Although some
commercial software exist for computing the IRR but such exist as mere
products (computing aid) that never provide the fundamental theory
upon which the calculation is moored or founded. As a result the user
merely inputs the necessary data in the textbox, enter and a display
appears showing the results; but that is just all. This paper goes beyond
user – friendliness to seek to contribute to knowledge by demonstrating
the plausibility of application of binomial theory and NewtonRaphson’s equation to IRR calculation, an initiative that past studies
have sparsely investigated. Further, the research objective is sharpened
by the need to develop an easy-to-use IRR calculator. The theoretical
development of the IRR calculator is rooted on Newton-Raphson’s
equation of Numerical Analysis and the computational scheme was
programmed with Visual Basic.net 2010. Our results prove that the
method advocated is sure fire and the computational accuracy, which
could be approximated to the nearest one percent, is the first rate. A
numerical illustration is presented. The method proposed in this study is
presented in both illustrative and instructive ways thereby making the
research outcome not only relevant for academic purpose but also
ideally suited to industrial engineers and practising finance managers
as their guide to necessary action