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# roulettecalculators| How to calculate the difference corrected internal rate of return? Formula for calculating the difference corrected internal rate of return

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**简介** How to calculate the difference modified internal rate of returnThe difference-corrected internal ra

How to calculate the difference modified internal rate of return

The difference-corrected internal rate of return (Adjustment Internal Rate of Return, ADRR) is used in the evaluation of investment projects.**Roulettecalculators**Important financial indicators are used to measure the profitability of project investment. By correcting the deficiency of traditional internal rate of return (Internal Rate of Return, referred to as IRR), it provides investors with**Roulettecalculators**It provides a more accurate basis for investment decision. This article will introduce in detail how to calculate the difference modified internal rate of return and the relevant contents of its calculation formula.

First, we need to understand the concept of internal rate of return (IRR). The internal rate of return refers to the discount rate that makes the net present value (Net Present Value, referred to as NPV) of the project equal to zero. In other words, IRR is the average rate of return on project investment. When the rate of return of the project is higher than this level, the project is considered to be profitable; otherwise, it is considered to be lossmaking.

However, the traditional IRR method has some limitations in dealing with non-traditional cash flows (such as the alternation of positive and negative cash flows). At this time, the margin correction internal rate of return (ADRR) is particularly important. The ADRR is calculated as follows:

one**Roulettecalculators**. Determine the positive and negative alternating period of the project cash flow. For example, the positive and negative alternating periods of cash flows for a project are the third and fourth years.

two**Roulettecalculators**. Calculate the absolute difference of cash flow between positive and negative alternating periods. In this example, we need to calculate the absolute difference of cash flows between the third and fourth years.

3. The new internal rate of return is calculated using the revised cash flow difference. In this example, we will use the revised cash flow difference between the third and fourth years to find a new discount rate such that the net present value (NPV) of the project is equal to zero through iterative or numerical analysis.

In order to show the calculation process more intuitively, we can explain the calculation steps through the following table:

Year cash flow (ten thousand yuan) 1-300 2 100 3 200 4-150 5 250In this example, we need to calculate the absolute difference of cash flow between the third and fourth years, that is:-150-200 | = 350 (ten thousand yuan). Then, using the revised cash flow difference (3.5 million yuan), through the iterative method or numerical analysis method, find a new discount rate (assuming 12%), so that the net present value (NPV) of the project is equal to zero. At this point, we get a margin-corrected internal rate of return (ADRR) of 12%.

In short, the difference-corrected internal rate of return (ADRR) is a financial indicator to make up for the shortcomings of traditional IRR methods. By calculating the revised cash flow difference and the new internal rate of return, investors can more accurately evaluate the profitability of project investment and make more informed investment decisions.

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