ASTM_E_1057_-_15.pdf

Designation:E105715Standard Practice forMeasuring Internal Rate of Return and Adjusted InternalRate of Return for Investments in Buildings and BuildingSystems1This standard is issued under the fixed designation E1057;the number immediately following the designation indicates the year oforiginal adoption or,in the case of revision,the year of last revision.A number in parentheses indicates the year of last reapproval.Asuperscript epsilon()indicates an editorial change since the last revision or reapproval.INTRODUCTIONThe internal rate-of-return(IRR)and adjusted internal rate-of-return(AIRR)methods are membersof a family of economic evaluation methods that provide measures of economic performance of aninvestment over time.Other methods in this family of evaluation methods are life-cycle cost analysis,net benefits and net savings analysis,benefit-to-cost and savings-to-investment ratio analysis,andpayback analysis.The IRR and AIRR methods are the topic of a single standard practice because they both measureeconomic performance as a compound yield on investment.The IRR is the compound rate of interestthat,when applied as a discount rate to a projects stream of dollar benefits and costs,will equate them.The AIRR is the overall yield taking into account earnings on receipts reinvested to the end of thestudy period.The IRR or AIRR is compared against the investors minimum acceptable rate of return(MARR),and the investment is considered economically attractive if the calculated yield exceeds theMARR.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 timeperiods,the two will normally be different.This arises because the AIRR includes in its measure thereturn on reinvestment of receipts,whereas the IRR does not.The AIRR is recommended for most applications in which a measure of yield is desired.Cautionis recommended in applying either measure,however,because problems arise under certainconditions.1.Scope1.1 This practice covers a procedure for calculating andinterpreting the internal rate of return(IRR)and adjustedinternal rate of return(AIRR)measures in the evaluation ofbuilding designs,systems,and equipment.1.2 The values stated in inch-pound units are to be regardedas standard.The values given in parentheses are mathematicalconversions to SI units that are provided for information onlyand are not considered standard.1.3 This standard does not purport to address all of thesafety concerns,if any,associated with its use.It is theresponsibility of the user of this standard to establish appro-priate safety and health practices and determine the applica-bility of regulatory limitations prior to use.2.Referenced Documents2.1 ASTM Standards:2E631 Terminology of Building ConstructionsE833 Terminology of Building EconomicsE917 Practice for Measuring Life-Cycle Costs of Buildingsand Building SystemsE964 Practice for Measuring Benefit-to-Cost and Savings-to-Investment Ratios for Buildings and Building SystemsE1074 Practice for Measuring Net Benefits and Net Savingsfor Investments in Buildings and Building SystemsE1121 Practice for Measuring Payback for Investments inBuildings and Building Systems1This practice is under the jurisdiction of ASTM Committee E06 on Perfor-mance of Buildings and is the direct responsibility of Subcommittee E06.81 onBuilding Economics.Current edition approved May 1,2015.Published June 2015.Originallyapproved in 1985.Last previous edition approved in 2010 as E1057 06(2010).DOI:10.1520/E1057-15.2For referenced ASTM standards,visit the ASTM website,www.astm.org,orcontact ASTM Customer Service at serviceastm.org.For Annual Book of ASTMStandards volume information,refer to the standards Document Summary page onthe ASTM website.Copyright ASTM International,100 Barr Harbor Drive,PO Box C700,West Conshohocken,PA 19428-2959.United States1 E1185 Guide for Selecting Economic Methods for Evaluat-ing Investments in Buildings and Building SystemsE1369 Guide for Selecting Techniques for Treating Uncer-tainty and Risk in the Economic Evaluation of Buildingsand Building SystemsE1765 Practice for Applying Analytical Hierarchy Process(AHP)to Multiattribute Decision Analysis of InvestmentsRelated to Buildings and Building SystemsE1946 Practice for Measuring Cost Risk of Buildings andBuilding Systems and Other Constructed ProjectsE2204 Guide for Summarizing the Economic Impacts ofBuilding-Related Projects2.2 ASTM Adjuncts:3Discount Factor Tables,Adjunct to Practices E917,E964,E1057,E1074,and E11213.Terminology3.1 DefinitionsFor definitions of general terms related tobuilding construction used in this practice,refer to Terminol-ogy E631;and for general terms related to building economics,refer to Terminology E833.4.Summary of Practice4.1 This practice is organized as follows:4.1.1 Section 1,ScopeIdentifies coverage.4.1.2 Section 2,Applicable DocumentsLists ASTM stan-dards that are referenc