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

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...

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 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 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...

This paper introduces new money-weighted metrics for investment performance analysis, based on arithmetic means of holding period rates weighted by the investment's market values. This approach generates rates of return which measure a fund's or portfolio's performance and a fund manager's...

Discounted cash flows methods such as Net Present Value and Internal Rate of Return are often used interchangeably or even together for assessing value creation in industrial and engineering projects. Notwithstanding its difficulties of applicability and reliability, the internal rate of return...

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...

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,...

This paper presents a real-life application of a fuzzy expert system aimed at rating and ranking firms. Unlike standard Discounted Cash Flow (DCF) models, it integrates financial, strategic and business determinants and processes both quantitative and qualitative variables.Twenty-one value...