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ProCash, an Economic Model for Income Properties

Financial Management Rate of Return (FMRR) is an investment measurement involving the following steps.

a) Positive cash flow which will be required to meet later negative cash flow is assumed to be invested at a "safe" rate.

b) Additional negative cash flows must be provided for at inception of the investment with funds invested at a "safe" rate.

c) Remaining positive cash flows can be invested on more favorable terms, at a "reinvestment" rate, provided that the amounts are large enough to meet the minimum investment requirements of these more attractive investment vehicles.

d) Remaining positive cash flows can be invested at the "safe" rate and accumulated to the end of the analysis period.

After these four steps, two cash flows remain: the original investment amount and the amount expected at liquidation. The FMRR is the discount rate that causes the present value of both these amounts to be equal.

Another investment criteria is similar. The Modified Internal Rate of Return (MIRR) uses steps b), c), and d) but does not include step a). DEVPLAN© systems present FMRR but do not present MIRR.

If no values are given to the FMRR inputs, FMRR will be calculated assuming 8% as a safe rate and 12% as a reinvestment rate. A $10,000 minimum investment amount to earn the safe return will be assumed unless otherwise specified.

input | description | help# | importance | frequency |
---|---|---|---|---|

MV[11] | Safe Rate of Return for Liquid Assets for FMRR ° | 647 | 3 | |

ENT[;10] | Prtnr Share & Criteria: Safe return on investment (FMRR) | 647 | 2 | |

ENT[;11] | Prtnr Share & Criteria: Reinvestment Rate (FMRR) | 647 | 2 | |

ENT[;12] | Prtnr Share & Criteria: Minimum reinvestment amount(FMRR) | 647 | 2 | |

MV[74] | Reinvestment Rate for Surplus Funds for FMRR ° | 647 | ||

MV[75] | Minimum Reinvestment Amount for FMRR ° | 647 |