Projection of TIR (Spanish abbreviation standing for Internal Rate of Return) of the investor through linear equations

Abstract

This article seeks to present the factors that serve as a basis to calculate or project the investor’s profitability, taking only into account the financial leverage effect. It avoids the use of the most basic tool, the Internal Rate of Return (TIR), as the traditional methodology of work. Before presenting such formula, which is the main contribution of this article, the meaning of the term financial leverage is presented, as well as the way its application will be of direct and quantifiable advantage to the investor. An analysis of the most basic way of payment of the financial liabilities is entered into consideration: Interest and capital at the end of the term, which corresponds to a first approach to find a series of nonlinear equations that allow the projection of the investor to be subjected to n variables. It is assumed that taxes do not exist, neither the effect of the tributary benefit, nor bankruptcy and agency costs.