This paper focuses on inconsistencies arising from the use of NPV and CAPM for capital budgeting. It shows that (i) CAPM capital budgeting decision-making based on disequilibrium NPV is deductively inferred by the Capital Asset Pricing Model, (ii) the use of the disequilibrium NPV is widespread...

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...

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 Magni [Eur. J. Operat. Res. 137 (2002) 206] I present some inconsistencies implicit in thenet-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 that...

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...

The IRR problem. As widely known, the IRR has serious flaws: (i)multiple real-valued IRRs may arise, (ii) the meaning of each IRR may be ambiguous (rate of return or rate of cost?), (iii)complex-valued IRRs may arise, (iv) the IRR is, in general, incompatible with the net present value (NPV) in...

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 expands Teichroew, Robichek and Montalbano's (TRM) (1965a, b) rate-of-return model into a complete and general model of economic profitability for investment decision-making. Specifically, TRM's assumptions are relaxed and a project rate of return is derived, expressing the project's...

This note specifies some results found in [Magni 2010. The Engineering Economists, 55(2), 150-180] where the Average Internal Rate of Return (AIRR) is presented, which overcome all the IRR difficulties. In particular, the AIRR approach enables to prove that (1) a project is not uniquely...

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