We propose a genuinely internal approach to project valuation and decision based on the average Return On Investment (ROI), obtained as the ratio of total operating profit (NOPAT) to total invested capital or, equivalently, as the ratio of net cash flow to total invested capital. The approach...

The average internal rate of return (AIRR), introduced by Magni (2010), fixes many deficiencies associated with the traditional internal rate of return (IRR), including apparent inconsistency with net present value (NPV). The AIRR approach breaks down project NPV into scale (the capital...

Purpose – The purpose of this paper is to investigate the approaches to calculate measures of value creation incorporating capital charge, to reveal inconsistencies in combining market and book values in a single measure and to suggest necessary corrections.Design/methodology/approach – The...

As the objective of the capital budgeting is to add values to the wealth of an owner of a business, the capital budgeting primarily insists the recovery of investments made in the projects. To improve the owner’s wealth, it is important to evaluate and identify profitable projects using some...

Firms make extensive use of operating leases, but unlike other types of debt, their balance sheet value is set by the firm. Using novel information on operating leases from new reporting requirements (ASC 842) we examine firm behavior in valuing these leases, specifically, discount rate choices....

We find that business cycles drive productive economic churn. During recessions, firms with high previous abnormal investment scale back while firms with low abnormal investment scale up. These findings are consistent with an improvement in investment efficiency over the business cycle. Our...

This paper presents a new way of measuring residual income and valuing firms. The method, originally introduced in Magni (2000a, 2000b, 2000c, 2001)and fully developed in Maggni (2009a,b 2010) is named lost-capital paradigm. In order to enhance comprehension the presentation relies on a very...

This paper examines international differences in firms' cost of equity capital across 40 countries. We analyze whether the effectiveness of a country's legal institutions and securities regulation is systematically related to cross-country differences in the cost of equity capital. We employ...

The paper supplies additional explanations to my earlier published article What's Wrong with the Economic Value Added. It stresses that the construction of Accounting based Capital Charge doesn't mean the departure from market values of cost of equity and cost of debt. On the contrary Accounting...