
a
j
be the payment at time j, with sign + for inflows and sign - for outflows.
Each payment at time j will be discounted back to the present using the factor
1/(1 + i)
j
, where i = the interest rate used, and j = the number of years (periods)
until the payment is made.
The equation for internal rate of return is given by
Equation 4.8
This, in turn, can be stated as
Equation 4.9
We now have a polynomial of degree n, and we can apply the standard alge-
braic and numerical analysis methods of solving for the solutions to the poly-
nomial. The fundamental theorem of algebra states that this equation will have
n solutions, counting multiplicities, in the complex ...