7.2 Rate of Return Calculation Using a PW
or AW Relation
The ROR value is determined in a generically different way compared to the PW or AW value for
a series of cash flows. For a moment, consider only the present worth relation for a cash flow
series. Using the MARR, which is established independent of any particular project’s cash flows,
a mathematical relation determines the PW value in actual monetary units, say, dollars or euros.
For the ROR values calculated in this and later sections, only the cash fl ows themselves are used
to determine an interest rate that balances the present worth relation. Therefore, ROR may be
considered a relative measure, while PW and AW are absolute measures. Since the resulting interest
rate depends only on the cash fl ows themselves, the correct term is internal rate of return
(IROR); however, the term ROR is used interchangeably. Another defi nition of rate of return is
based on our previous interpretations of PW and AW.