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07-03-2016 12:46 PM

Dear All,

For a project at my university, I like to calculate the internal rate of return for multiple projects. That is, I have data on the "price" of today P, the future monthly Cash flows (CF) for the next 5 years and then a growth assumption for these Cash flows up to infinity. Now, I like to calculate the internal rate of return which discounts the future cash flows to the price of today. I was told its easiest to use proc fcmp for that, but i am not experienced with that...

I uploaded an image of the formula, I need to solve for r - i have data for the rest of the variables.

I'd be super thankful if someone could help me, as I am starting to get desperated :-(

(I am a SAS newbe, please excuse my unawareness of basic things).

Thank you!

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Solution

07-29-2016
09:02 AM

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Posted in reply to Frieda

07-04-2016 12:28 PM - edited 07-04-2016 12:39 PM

Hi,

First look at Financial functions in SAS Functions and CALL Routines by Category:

Your required function might be there. If not...

Your cash flow is quite special, so maybe you really need to use PROC FCMP to solve for r.

This is how I would do it:

I'm starting from the SOLVE Function code examples here:

proc fcmp; /* define the present value function*/ function present_value(r, cf1,cf2,cf3,cf4,cf5, cf6_oo);

array cfs[6] cf1 cf2 cf3 cf4 cf5 cf6_oo;

p=0;

do t=1 to 5;

p=p + cfs[t]/(1+r)**t + cfs[t+1]/(r*(r+1)**t); /*This is your formula*/

end;

return (p);

endsub;

function get_r(pv, cf1,cf2,cf3,cf4,cf5, cf6_oo);

r=solve('present_value', {.}, pv, ., cf1,cf2,cf3,cf4,cf5, cf6_oo);

return(r);

endsub;

data want;

set have;

r=get_r(pv, cf1,cf2,cf3,cf4,cf5, cf6_oo);

run;

Note, you might need to specify a starting value for r in the solve() functoon call. (See: {.})

Sorry, I have not run the code - no syntax check at all.

Hope this helps.

Greg

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Posted in reply to Frieda

07-03-2016 01:28 PM

Do not despair! What parameters would you pass to such a function?

PG

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Posted in reply to PGStats

07-04-2016 02:06 AM

Hi,

Well, I got the price of today and the future cash flow amounts in US dollars. The r is the value that is searched for in decimals.

Frieda

Solution

07-29-2016
09:02 AM

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Posted in reply to Frieda

07-04-2016 12:28 PM - edited 07-04-2016 12:39 PM

Hi,

First look at Financial functions in SAS Functions and CALL Routines by Category:

Your required function might be there. If not...

Your cash flow is quite special, so maybe you really need to use PROC FCMP to solve for r.

This is how I would do it:

I'm starting from the SOLVE Function code examples here:

proc fcmp; /* define the present value function*/ function present_value(r, cf1,cf2,cf3,cf4,cf5, cf6_oo);

array cfs[6] cf1 cf2 cf3 cf4 cf5 cf6_oo;

p=0;

do t=1 to 5;

p=p + cfs[t]/(1+r)**t + cfs[t+1]/(r*(r+1)**t); /*This is your formula*/

end;

return (p);

endsub;

function get_r(pv, cf1,cf2,cf3,cf4,cf5, cf6_oo);

r=solve('present_value', {.}, pv, ., cf1,cf2,cf3,cf4,cf5, cf6_oo);

return(r);

endsub;

data want;

set have;

r=get_r(pv, cf1,cf2,cf3,cf4,cf5, cf6_oo);

run;

Note, you might need to specify a starting value for r in the solve() functoon call. (See: {.})

Sorry, I have not run the code - no syntax check at all.

Hope this helps.

Greg

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Posted in reply to gergely_batho

07-05-2016 11:55 AM

Thank you! I will try to apply this, and see how far it takes me towards my desired outcome :-)

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Posted in reply to Frieda

07-05-2016 11:25 AM

You may want to investigate the SAS supplied functions IRR and INIRR or the FINANCE function IRR, MIRR, XIRR options before doing a lot of work unless those don't meet your needs.