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INTRODUCTION
The view, shared by a number of academicians and practitioners, that the IRR is unreliable and does not reflect the genuine rate of return of a project has triggered the development of many surrogate rate of return criteria [4], [5], [7]. Recently, Beaves has proposed another one, the Overall Rate of Return (ORR) [3], which is a new version of his earlier Rate of Return (ROR*) [4], [5]. Both the ROR* and the ORR are based on the notion of the transition point (TP), and the differences between them result from the differences in the definitions of their respective TPs. It is demonstrated here that both versions of Beaves' ORR, along with other well known project evaluation criteria designed in the rate of return format, are, in fact, not fully NPV compatible, and a complete generalized definition of a NPV compatible ORR criterion based on the notions of the initial and terminal wealths is provided.
THE PROJECT'S TRANSITION POINT AND THE OVERALL RATE OF RETURN
Let us assume the condition of certainty and a perfect capital market, and adopt Beaves' notation from [3]. According to this notation, let us denote by [0,n], n >= 1, a project's life time; by
(1) {a sub j }, j = 0,1,...,n, a sub 0 -= 0,
the project's cash flow sequence (CFS), where it can be assumed without a loss of generality that a sub 0 -= 0; by t* the project's TP; and by r sub p,q , q >= p, p,q = 0,1,...,n, the average opportunity interest rates for time periods [p,q], where, by definition, r sub p,p = 0 and r sub 0,n = k. Denote, after [3], the projects so-called initial wealth by
(Equation 2 omitted)
and the project's terminal wealth by
(Equation 3 omitted)
Note that both W sub 0 and W sub n are, usually, functions of the interest rates r sub p,q .
The project's NPV*, as a function of the average interest rate k, can now be formulated as follows:
(Equation 4 omitted)
Note that this function is defined for k-epsilon(-1, +inf) and that the ORR, both for investment and financing projects, will be such a k from within the domain (-1, +inf) that NPV*(k) = 0.(2) Formally, this...