| Abstract: | This paper presents an alternative to the usual iterative method for determining the approximate internal rate of return in capital budgeting. The method developed is based on the standard numerical analysis technique of successive approximations or iterations. The iterations converge to the true internal rate of return provided only that the initial cash outflow is greater than the salvage value. A comparison is made of the rates of convergence of the iteration method, Newton's method and the bisection method. Under certain restrictive conditions, the payback reciprocal is seen to play an important role in all three methods. |
