3) economic internal rate of return
(EIRR)
Economic internal rate of return(EIRR) corresponds to interest rate. If the flow of cost is returned from the benefit. EIRR is defined as the solution of the following equation
B: benefit in the t th year(yen)
C: cost in the t th year (yen)
t: year from the base
d: span of construction period(year)
T: span of Project Life:40 years
In the case of a road project, since cost weights so much in the initial period and benefit is produced gradually later, ENPV declines rate is raised up. the discount rate can be raised up so that the present value of benefit should be equal to the present value of cost or that ENPV should be zero.
ENPV is depicted as a function of the discount rate in figure 3-4-1, when EIRR is assumed to be 12% just for illustration