An Analysis of the True Rate of Return Project Evaluation Criterion

The internal rate of return (IRR) is one of the most popular project evaluation criteria in the mineral industry, as well as in other industrial sectors. Analysis of its assumptions reveals, however, that this criterion does not function in the way it is supposed to. The search for a new criterion that would reflect the true rate of return (TRR) of an investment project or the true borrowing rate (TBR) of a borrowing project has led to the development of several approaches, yielding, for the same project, generally different values of the interest rate in question. Two of those approaches have been selected as the most representative and practical. Each has been presented in two variants, and subsequently analysed. As a result, it is shown that the various approaches to the TRR/TBR are all consistent with the net present value (NPV) criterion, and that each can serve as an independent project evaluation instrument, provided its assumptions can be regarded in a given situation as realistic enough.