Tag Archives: External Rate of Return

W5_ASY_Project Evaluation Using ERR Method


Problem Statement

Continue to discuss further using topic from my W4 posting here I want to talk about using ERR for evaluating this project. The tools as discussed in in Engineering Economy Engineering Book, chapter 5, page 178-211. This is introducing external reinvestment rate (ɛ) per period. Just like IRR, ERR is used to evaluate the economic justification of project. But this time ERR that taken into account the interest rate external at which cash flow generated over the lifecycle of project. This method is also useful for solving similar problems as stated in in problem 5-46 at this book. But, instead of using MARR = 12%, in this posting I am using ɛ = MARR 20% because as I am using real life example as described in my blog posting W4 previously.
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