financial management rate of return

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financial management rate of return (FMRR)

A method of evaluating the performance of a real estate investment,FMRR is a modified version of the internal rate of return tool.FMRR uses two different rates for its calculations:(1) the cost of capital rate to discount future negative cash flows back to the present (in other words,what would it cost you to borrow the money to cover losses in future years?) and (2) a specified reinvestment rate for compounding future positive cash flows to the end of the projection period (in other words, what if you took your profits and reinvested them at a certain rate,how would they grow?)

References in periodicals archive ?
One of the main differences between the IRk and FMRR is the FMRR's use of an established reinvestment rate.
The trend shows exactly what is expected when comparing both IRR and FMRR methods.
If an investor has an accurate measurement of the return available from alternative investment opportunities, the FMRR would better state the real return on the individual investment property.
The aforementioned scenarios all show how the IRR and FMRR can vary with a single change in one of the variables at a time.
In tables a and b, the IRR method produces an average rate of return that is higher in the actual and spike scenarios, but a lower rate of return in the dip scenario compared with the FMRR method.
It was interesting to note that the FMRR method again produced a standard deviation below that of the IRR method using the same parameters.
In this analysis, it was shown that the FMRR method produces results that fluctuate less with changes in the holding period and selling price parameter compared with the IRR method.
In the analysis that concentrated on a single variable, the FMRR varied less than the IRR under changing holding periods.