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...

In investment appraisal, uncertainty can be managed through intervals or fuzzy numbers because the arithmetical properties and the extension principle are well established and can be successfully applied in a rigorous way. We apply interval and fuzzy numbers to the Average Internal Rate of...

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 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...

In Magni [Eur. J. Operat. Res. 137 (2002) 206] I present some inconsistencies implicit in the net-present-value criterion, as currently used in finance. This paper shows that the standard use of CAPM for capital budgeting, based on disequilibrium values, is at odds with arbitrage theory, and...

This paper presents a new approach to real options. The current options-based models have provided new insights into capital-budgeting decisions. Unfortunately they are not widely used by corporate managers and practitioners as they are formally complex, rather difficult to understand and rest...

Practitioners and academics in valuation include changes in liquid assets (potential dividends) in the cash flows. This widespread and wrong practice is inconsistent with basic finance theory. We present economic, theoretical, and empirical arguments to support the thesis. Economic arguments...

This paper deals with the problem of modelling in a formal way the concept of excess profit, also known as residual income. A common idea is that excess profit is an unequivocal concept, being the diference between profit and costs, where all types of costs are taken into account, included the...

Practitioners and some academics use potential dividends rather than actual payments to shareholders 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...

This paper analyzes the relations among different concepts such as earnings, profit, interest, rate, consumption, dividend, installment, cash flow, capital. It aims atembracing these notions in a unique conceptual "umbrella" , consisting of five perspectives: (1) accounting, (2) economic theory,...