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Re: [Help-glpk] IRR (Internal Rate of Return) using MathProg


From: Noli Sicad
Subject: Re: [Help-glpk] IRR (Internal Rate of Return) using MathProg
Date: Sat, 15 Sep 2012 12:05:51 +1000

Hi Robbie,

On 9/15/12, Robbie Morrison <address@hidden> wrote:

> I cannot help you with the MathProg code.  But I do use
> discounted cash flow calculations.  So here are some
> observations:
>
> IRR is not NPV.  You need to get the right formula from
> wikipedia.  It seems to me (but I could be badly
> mistaken) that NPV is an explicit equation and IRR is
> implicit.  NPV takes the discount rate as parameter,
> hence no need for numerical methods like
> Newton-Raphson.  You just need NPV then?

Yes, my model is maximising NPV (as you can in this screenshot below).

https://picasaweb.google.com/116847891529748214201/ForestValueFOLPIBasedFormulationForestValuationForestEstateModellingAndWoodflowModel#5787997991655844226

> Once you get your formula working, check it against the
> appropriate spreadsheet function.  In my case, I used:
> PMT(rate, periods, investment value, future value).
> That way you will align with the industry conventions.
>
> You can sometimes break the formulas up into parts for
> ease of coding.
>
> You will need to decide how to deal with all the corner
> cases: can the interest rate be zero for instance, do
> you wish to check, what happens then, and so on ..
>
> One reference that I never used, but looked interesting:
>
>   Ƙdegaard, Bernt Arne.  2007.  Financial numerical
>     recipes in C++ -- April 2007.  Software
>     documentation.
>
>     http://finance.bi.no/~bernt/gcc_prog
>     http://finance.bi.no/~bernt/gcc_prog/recipes/recipes.pdf
>     http://finance.bi.no/~bernt/gcc_prog/recipes/finrecipes.tar.gz

These financial recipes are interesting.

It might be good to include some of these financial functions (NPV,
IRR, etc.) in the MathProg. It will facilitates easy generating of
reports.

> Finally, try googling with "GAMS".  This must be a
> common enough task for GAMS users.  This one looks
> related (but care with the download, the filename
> contains comma chars):
>
>   Wu, Jinzhuo, Mark Sperow, and Jingxin Wang.  2010.
>     Economic feasibility of a woody biomass-based
>     ethanol plant in central Appalachia.  Journal of
>     Agricultural and Resource Economics v35 no3
>     p522-544.
>
>     http://purl.umn.edu/99118
>
> http://ageconsearch.umn.edu/bitstream/99118/2/JARE,Dec2010,%2311F,pp522-544.pdf

Thanks for posting the URL of this paper. I am also interest in
Bioenergy modelling especially includes estate modelling (i.e. forest
estate for biomass for energy and farm estate for producing biomass or
biofuels for certain crop).

I just browse the pdf and it seems that it has good methodology in
using IRR and NPV as can see in the graphs.

Thanks.

Noli



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