A Novel Approach to Internal Rate of Return (IRR) Calculation Using Both NFV and NPV
State-of-the-art (SOTA) methods for computing the Internal Rate of Return (IRR), including Newton-Raphson, Brent’s method and widely used libraries and applications, such as numpy_financial, Microsoft Excel, and Google Sheets, occasionally encounter difficulties when applied to irregular cash flows, multiple IRR scenarios, or near zero values. This paper introduces the Rao method, a novel approach that uses both the Net Present Value (NPV) and Net Future Value (NFV) to enhance the accuracy and stability of IRR calculations. Unlike traditional methods that only consider NPV for calculating the IRR, Rao’s method ensures stability by considering both NPV and NFV and selecting the most reliable IRR through residual minimization. Empirical evaluations on real-world and synthetic datasets demonstrate its superior reliability, establishing it as a robust method for calculating IRR.
Authors
- Chandra Sekhara Rao Annavarapu (ORCID: https://orcid.org/0000-0002-1239-9843)
- Durga Rao Manchikanti
Institutions
- Indian Institute of Technology Dhanbad (IN)
- Institute of Chartered Financial Analysts of India (IN)
Publication Details
- Published
- 2025-03-06
- DOI
- https://doi.org/10.1109/rait65068.2025.11089057
- Primary Topic
- Fault Detection and Control Systems
- Type
- article
- Field-Weighted Citation Impact
- 0.00