ASTM E1057-04

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An American National Standard
Designation:E1057–04
Standard Practice for
Measuring Internal Rate of Return and Adjusted Internal
Rate of Return for Investments in Buildings and Building
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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 E1074 Practice for Measuring Net Benefits and Net Sav-
ings for Investments in Buildings and Building Systems
1.1 Thispracticeestablishesaprocedureforcalculatingand
E1121 Practice for Measuring Payback for Investments in
interpreting the IRR and AIRR measures in the evaluation of
Buildings and Building Systems
building designs, systems, and equipment.
E1185 Guide for Selecting Economic Methods for Evalu-
2. Referenced Documents
ating Investments in Buildings and Building Systems
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2.2 ASTM Adjuncts:
2.1 ASTM Standards:
Discount Factor Tables, Adjunct to Practices E917, E964,
E833 Terminology of Building Economics
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E1057, E1074, and E1121
E917 PracticeforMeasuringLife-CycleCostsofBuildings
and Building Systems
3. Terminology
E964 Practice for Measuring Benefit-to-Cost and Savings-
3.1 Definitions—For definitions of terms used in this prac-
to-Investment Ratios for Buildings and Building Systems
tice, refer to Terminology E833.
4. Summary of Practice
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This practice is under the jurisdiction of ASTM Committee E06 on Perfor-
mance of Buildings and is the direct responsibility of Subcommittee E06.81 on 4.1 This practice is organized as follows:
Building Economics.
4.1.1 Section 1, Scope—Identifies coverage.
Current edition approved Oct 1, 2004. Published October 2004. Originally
4.1.2 Section 2, Applicable Documents—Lists ASTM stan-
approved in 1985. Last previous edition approved in 1999 as E1057–99.
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dards that are referenced.
For referenced ASTM standards, visit the ASTM website, www.astm.org, or
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
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the ASTM website. Available from ASTM Headquarters. Order Adjunct No. ADJE091703.
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E1057–04
4.1.3 Section 3, Terminology—Addresses definitions of 6.1.3 Compute IRR orAIRR based on a comparison of two
terms. alternatives (one of which may be to do nothing).
4.1.4 Section 4, Summary of Practice—Outlines the con- 6.1.4 Compare the computed IRR or AIRR against the
tents. MARR to determine the acceptability of the alternative with
4.1.5 Section 5, Significance and Use—Explains the rel- the higher investment cost.
evance of the IRR and AIRR and indicates their appropriate 6.1.5 Ifalimitedbudgetistobeallocatedamongcompeting
uses. alternatives, select alternatives in descending order of their
4.1.6 Section 6, Procedure—Summarizes the steps in IRR IRR or AIRR measures until the budget is exhausted.
and AIRR analysis. 6.1.6 Report the results.
4.1.7 Section 7, Objectives, Constra
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