On the use of internal rate of return in linear and integer programming

Internal rate of return (IRR) is used as a criterion in many investment decisions. For example many issuers of new municipal debt evaluate competitive bids on the basis of IRR. We incorporate IRR into mathematical programming formulations in such a way that the resulting problem becomes linear. This linearization permits linear programming and integer linear programming algorithms to be brought to bear on problems which had heretofore been solved in an iterative, time consuming fashion.