Hi Sheldon,
From what I can gather the term "economic rate of return" has multiple
meanings. In IDB use, where it is abbreviated as EIR not ERR, it uses a
calculation involving shadow pricing to account for economic opportunity
costs. To me this sounds like something that one would do in a model in a
spreadsheet, not as a single spreadsheet function. Consider: each of
your cash flows could involve an arbitrary discount based on what are
essentially project-specific judgement calls as well as addition costs to
reflect social or environmental costs. Do you think these assumptions
would make a cohesive spreadsheet function? If so, what would the
function look like? What would its parameters be?
Regards,
-Rob
Sheldon Britton <> wrote on 06/04/2008 03:33:26 PM:
> Hi Robert,
>
> Thank you very much for the timely response and the opportunity to
> raise the question.
>
> From working experience I am now also taking the opportunity to
> forward documentation (see attachment) which describes the
> procedures for the return/computation of Economic Rate of Return
> (ERR) values as distinct from those of the return/computation of
> Internal Rate of Return (IRR) as defined in formula listings of
> OpenOffice's Calc, IBM's Lotus 1-2-3, IBM's Lotus Symphony's 1.0
> SpreadSheet et cetera et cetera.
>
> Re: "So how to turn an IRR into an ERR? I suppose the joke answer
> would be "Invest in sub-prime mortgages"; Wow... (was that "ENRON"
> or "sub-prime" ;-) !
> Response: Which better company to be with other than the one (IBM)
> which now have the responsibilities for the Federal Housing Loans
> origination port folio; and, beyond these let us look at the "
> services opportunities" (delivery solutions...) in the world's
> energy and commodities markets (food...) among others in that IBM's
> "Lotus Symphony" like "OpenOffice" can be freely obtained. $$$ :-D
>
> Also, "But seriously, my understanding is that Internal Rate of
> Return, as we define it in OpenFormula, is the same as what some
> practitioners call "Economic Rate of Return".
>
> The attached documentation which describes "Economic Rate of Return"
> employed by the Inter-American Development Bank ( http://www.iadb.org
> ) I am quite sure will undoubtedly provide some clarification and
> further understanding about this issue.
