Teaching Net Present Value Analysis: Returns-to-Assets versus Returns-to-Equity |
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Authors: | Stephen E Miller & Garnett L Bradford |
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Institution: | Department of Agricultural and Applied Economics, Clemson University |
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Abstract: | We survey textbooks from agricultural economics and other subject matter areas to determine their treatments of the returns-to-assets versus returns-to-equity methods for determining the net present value of investment projects. Textbook authors disagree about the appropriate method, often give conflicting advice as to how a given method should be applied, and do not show how the results of the two methods can be reconciled. We provide a consolidated discussion of the circumstances under which the two methods produce the same net present value. |
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