ASTM E1057-06
(Practice)Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems
Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems
SCOPE
1.1 This practice establishes a procedure for calculating and interpreting the IRR and AIRR measures in the evaluation of building designs, systems, and equipment.
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Designation:E1057–06
Standard Practice for
Measuring Internal Rate of Return and Adjusted Internal
Rate of Return for Investments in Buildings and Building
1
Systems
This standard is issued under the fixed designation E1057; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision.Anumber in parentheses indicates the year of last reapproval.A
superscript epsilon (e) indicates an editorial change since the last revision or reapproval.
INTRODUCTION
The internal rate-of-return (IRR) and adjusted internal rate-of-return (AIRR) methods are members
of a family of economic evaluation methods that provide measures of economic performance of an
investmentovertime.Othermethodsinthisfamilyofevaluationmethodsarelife-cyclecostanalysis,
net benefits and net savings analysis, benefit-to-cost and savings-to-investment ratio analysis, and
payback analysis.
The IRR andAIRR methods are the topic of a single standard practice because they both measure
economic performance as a compound yield on investment.The IRR is the compound rate of interest
that,whenappliedasadiscountratetoaproject’sstreamofdollarbenefitsandcosts,willequatethem.
The AIRR is the overall yield taking into account earnings on receipts reinvested to the end of the
study period.The IRR orAIRR is compared against the investor’s minimum acceptable rate of return
(MARR), and the investment is considered economically attractive if the calculated yield exceeds the
MARR. If an investment entails an initial outlay and a single receipt at the end of the study period,
there is no difference between the IRR and the AIRR. But if cash flows occur over multiple time
periods, the two will normally be different. This arises because theAIRR includes in its measure the
return on reinvestment of receipts, whereas the IRR does not.
The AIRR is recommended for most applications in which a measure of yield is desired. Caution
is recommended in applying either measure, however, because problems arise under certain
conditions.
1. Scope and Building Systems
E964 Practice for Measuring Benefit-to-Cost and Savings-
1.1 This practice covers a procedure for calculating and
to-Investment Ratios for Buildings and Building Systems
interpreting the internal rate of return (IRR) and adjusted
E1074 Practice for Measuring Net Benefits and Net Sav-
internal rate of return (AIRR) measures in the evaluation of
ings for Investments in Buildings and Building Systems
building designs, systems, and equipment.
E1121 Practice for Measuring Payback for Investments in
2. Referenced Documents
Buildings and Building Systems
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E1185 Guide for Selecting Economic Methods for Evalu-
2.1 ASTM Standards:
ating Investments in Buildings and Building Systems
E631 Terminology of Building Constructions
E1369 Guide for Selecting Techniques for Treating Uncer-
E833 Terminology of Building Economics
tainty and Risk in the Economic Evaluation of Buildings
E917 PracticeforMeasuringLife-CycleCostsofBuildings
and Building Systems
E1765 Practice forApplyingAnalytical Hierarchy Process
(AHP) to Multiattribute Decision Analysis of Investments
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This practice is under the jurisdiction of ASTM Committee E06 on Perfor-
Related to Buildings and Building Systems
mance of Buildings and is the direct responsibility of Subcommittee E06.81 on
E1946 Practice for Measuring Cost Risk of Buildings and
Building Economics.
Building Systems
Current edition approved April 1, 2006. Published April 2006. Originally
approved in 1985. Last previous edition approved in 2004 as E1057–04.
E2204 Guide for Summarizing the Economic Impacts of
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For referenced ASTM standards, visit the ASTM website, www.astm.org, or
Building-Related Projects
contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
Standards volume information, refer to the standard’s Document Summary page on
the ASTM website.
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E1057–06
2.2 ASTM Adjuncts: concerntothedecisionmaker.However,ithasdeficienciesthat
Discount Factor Tables, Adjunct to Practices E917, E964, limit its usefulness in choosing among projects competing for
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E1057, E1074, and E1121 a limited budget.
5.2 The AIRR method is a measure of the overall rate of
3. Terminology
return that an investor can expect from an investment over a
3.1 Definitions—For definitions of terms used in this prac- designated study period. It is appropriate both for evaluating
whether a given building or building system will be economi-
tice, refer to Terminologies E631 and E833.
cally efficient and for choosing among alternatives competing
4. Summary of Practice
for a limited budget.
4.1 This practice is organized as fo
...
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