This paper shows that the Internal-Rate-of-Return (IRR) approach is unreliable, and that the recently introduced Average-Internal-Rate-of-Return (AIRR) model constitutes the basis for an alternative theoretical paradigm of rate of return. To this end, we divide the paper into two parts: a pars...

The Net Present Value maximizing model has a respectable ancestry and is considered by most scholars a theoretically sound decision model. In real-life applications, decision makers use the NPV rule, but apply a subjectively determined hurdle rate, as opposed to the allegedly correct opportunity...

This paper introduces a new method of investment performance analysis, based on the recent approach of Average Internal Rate of Return (AIRR). We show that the approach generates rates of return suitable for assessing both a fund´s (portfolio´s) performance and a manager´s performance. The...

The internal rate of return (IRR) is often used by managers and practitioners for investment decisions. Unfortunately, it has serious flaws: (i) multiple real-valued IRRs may arise, (ii) complex-valued IRRs may arise, (iii) the IRR is, in general, incompatible with the net present value (NPV) in...

Practitioners and some academics use potential dividends rather than actual payments toshareholders for valuing a firm´s equity. We underline the differences between the two methods and present some arguments supporting the thesis that firm valuation with potential dividends overstate the...

Accounting measures are traditionally considered not significant from an economic point of view. In particular, accounting rates of return are often regarded economically meaningless or, at the very best, poor surrogates for the IRR, which is held to be "the" economic yield. Likewise, residual...

Questo articolo si propone di dimostrare che il ROE (Return On Equity) ha un significato economico pregnante, al contrario di quanto sostenuto nella letteratura finanziaria e manageriale, nonché nella prassi aziendale. In particolare, un´opportuna media dei ROE è in grado di segnalare la...

The internal rate of return (IRR) is a widely used benchmark for assessing the reliability of the accounting rate of return (ROA) as a measure of economic profitability. We turn this reasoning process on its head by demonstrating that a suitable (weighted average) aggregation of ROAs better...

This paper analyzes the net-present-value (NPV) model, a keystone in economics: Behaviors and lines of reasoning of NPV-minded decision makers are observed and analyzed. As a result, one finds out that the NPV methodology is biased and its decision makers fall prey to various forms of fallacies...

A large percentage of companies use the discounted cash flow (DCF) approach as the primary technique of investment/project evaluation and capital budgeting process. This approach requires forecasting detailed cash flow of the project under evaluation and then discounting the resulting cash flow...