A modified internal rate of return model designed to remedy some of the deficiencies of the internal rate of return (IRR) technique. Two rates are considered by the FMRR: (1) a safe, liquid after-tax rate, and (2) a run-of- the mill reinvestment rate.
A method of measuring investment performance that is a variation on the internal rate of return method. The user specifies 2 after-tax reinvestment rates: i L: a safe, liquid rate, obtainable for liquid deposits. i R: a run-of-the-mill rate, which can be earned from typical investments over a long-term. Negative cash flows are discounted to the present value at the i L rate, and inflows are compounded to the investment resale date at i R. The FMRR is the rate that equates the present value negative cash flows to the future value of inflows.