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class (weighted by book values) captures the project's economic profitability. Such a rate of return spans a space of …
Persistent link: https://www.econbiz.de/10013135472
Counterfactual conditionals are cognitive tools that we incessantly use during our lives for judgments, evaluations, decisions. Counterfactuals are used for defining concepts as well; an instance of this is attested by the notions of opportunity cost and excess profit (residual income), two...
Persistent link: https://www.econbiz.de/10013142309
is not capable of measuring the rate of return of an arbitrage strategy. The efforts of economists and management … project's profitability and correctly ranks competing projects. With such a measure, which we name ”Average Internal Rate of …
Persistent link: https://www.econbiz.de/10013116436
implicit in a project reliably informs about a project profitability and correctly ranks competing projects. With such a …
Persistent link: https://www.econbiz.de/10010763083
We show that the standard notion of residual income (RI) does not fulfill additive coherence. This gives rise to ambiguities and inconsistencies. The pitfall resides in the capital charge, which blends a non-market value with a market rate. We solve the problem by using a capital charge based on...
Persistent link: https://www.econbiz.de/10014361761
flows injected and withdrawn by the principal. We introduce the manager's profitability index (MPI), which is invariant …
Persistent link: https://www.econbiz.de/10013030775
In both finance and accounting, the Return On Equity (ROE) is considered a biased indicator of economic profitability … from problems of existence or uniqueness and may be employed for comparing profitability. The Internal Rate of Return (IRR … enables one to solve the multiple-IRR problem and to use the IRR for comparing firms' profitability. (Includes abridged …
Persistent link: https://www.econbiz.de/10013115692
This paper presents a theoretical framework for valuation, investment decisions, and performance measurement based on a nonstandard theory of residual income. It is derived from the notion of “unrecovered” capital, which is here named “lost” capital because it represents the capital...
Persistent link: https://www.econbiz.de/10013104372
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...
Persistent link: https://www.econbiz.de/10013065096
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,...
Persistent link: https://www.econbiz.de/10013039268