A resolution to the NPV–IRR debate?

Two criteria for choosing between capital investment projects are net present value (NPV) and internal rate of return (IRR). Sometimes they provide inconsistent rankings. This inconsistency sparked a debate about which criterion is better. The debate has lasted more than 100 years.This paper describes a new approach to the debate. The time value of money equation is a polynomial, and a polynomial of order n does not have a single root. It has n roots. The result of taking into account the n solutions for IRR is a new equation for NPV that suggests a resolution to the debate.     

Capital depreciation and the underdetermination of rate of return: A unifying perspective

This paper shows that the notion of rate of return is best understood through the lens of the average-internal-rate-of-return (AIRR) model, first introduced in Magni (2010a). It is an NPV-consistent approach based on a coherent definition of rate of return and on the notion of Chisini mean, it is capable of solving the conundrums originated by the rate-of-return notion and represents a unifying theoretical paradigm under which every existing measure of wealth creation can be subsumed. We show that a rate of return is underdetermined by the project’s cash-flow stream; in particular, a unique return function (not a unique rate of return) exists for every project which maps depreciation classes into rates of return. The various shapes a rate of return can take on (internal rate of return, average accounting rate of return, modified internal rate of return, etc.) derive from the (implicit or explicit) selection of different depreciation patterns. To single out the appropriate rate of return for a project, auxiliary assumptions are needed regarding the project’s capital depreciation. This involves value judgment. On one side, this finding opens terrain for a capital valuation theory yet to be developed; on the other side, it triggers the creation of a toolkit of domain-specific and purpose-specific metrics that can be used, jointly or in isolation, for analyzing the economic profitability of a given project. We also show that the AIRR perspective has a high explanatory power that enables connecting seemingly unrelated notions and linking various disciplines such as economics, finance, and accounting. Some guidelines for practitioners are also provided.     

The internal rate of return of fuzzy cash flow

An internal rate of return (IRR) of an investment of financing project with cash flow (a₀, a₁, a₂,..., a_n) is usually defined as a rate of interest such that $$a_0 + a_{\text{1}} {\text{(1}} + r{\text{)}}^{ - 1} + ... + a_n (1 + r)^{ - n} = 0$$ . If the cash flow has one sign change then the previous equation has a unique solution τ>?1. Generally the IRR does not extend to fuzzy cash flows, as it can be seen with examples (see [2]). In this paper we show that under suitable hypotheses a unique fuzzy IRR exists for a fuzzy cash flow.     

煤炭价格对燃煤发电项目内部收益率影响关系的研究

煤炭价格对燃煤发电项目经济效益具有决定性影响,煤价与电价的相对水平决定了煤炭行业、电力行业、政府间的利益分配。电力行业的市场化进度相对落后于其上游的煤炭产业,煤炭价格波动对电力企业的运营构成较大的成本风险。内部收益率是燃煤电厂经济效益的关键指标,文章以内部收益率作为研究对象,分析煤炭价格变动对内部收益率的影响,运用回归方法拟合煤炭价格对内部收益率的影响曲线,进一步通过数值差分法得到煤炭价格对内部收益率的微分曲线即边际影响曲线,并利用双曲函数拟合边际影响曲线。研究结果表明,在较低价格区间内,煤炭价格变化对内部收益率的边际影响度较小;在较高价格范围内,边际影响度以双曲函数的形式快速下降。     

投资项目评价标准的比较与选择

净现值、内部收益率、获利指数等贴现指标在互斥项目选择的实际应用中,常导致不同的投资决策,其原因、解决方法是本文探讨的目的。文章首先对净现值和内部收益率进行比较分析,着重介绍了内部收益率的先天缺陷及替代方法MIRR;然后分析净现值和获利指数的主要差异,最后得出结论:净现值是确定条件下投资项目评价标准中最合理的方法,其他标准则需结合着净现值来运用,否则可能导致决策失误。     

经济增加值(EVA)与传统管理者业绩评价指标的比较分析

通过对传统管理者业绩评价指标投资报酬率、剩余收益及新指标 EVA 的客观评价和比较分析,结果发现:若仅从实现股东财富最大化的财务目标而言,剩余收益优于投资报酬率,EVA 又优于剩余收益。EVA 并不能完全代替投资报酬率和剩余收益指标,但更加完善了管理者业绩评价指标体系。     

Time‐to‐market,window of opportunity,and salvageability of a new product development

The time‐to‐market in the presence of a window of opportunity is analyzed using ;a probabilistic model, i.e. a model where the completion time of new product development is a random variable characterized by a gamma distribution. Two cases are considered: the first, a case where the discounted return‐on‐investment exceeds the return expected from a conservative investment—e.g. investment in bonds—termed ‘the profitable case’; and the second, a case where the discounted return‐on‐investment just balances the cost of new product development, termed ‘the salvageable case’. The model constructed is focused on the financial aspects of new product development. It allows a decision‐maker to monitor, as well as terminate, a project based on its expected value (at any time prior to completion) by computing the mean time‐to‐market that provides profit, investment salvage, or loss. The mean time‐to‐market computed by the model may be compared with that estimated by the technology development team for decision‐making purposes. Finally, in the presence of a window of opportunity and for the specific cases analyzed, we recommend to always keep the expenditure rate lower than the expected return rate. This will provide the decision‐maker a salvageable exit opportunity if project termination is decided. Copyright © 2002 John Wiley & Sons, Ltd.     

The Returns to Education: Microeconomics

In this paper we focus on education as a private decision to invest in "human capital" and the estimation of the rate of return to that private investment. While the literature is replete with studies that estimate the rate of return using regression methods where the estimated return is obtained as the coefficient on a years of education variable in a log wage equation that contains controls for work experience and other individual characteristics, the issue is surrounded with difficulties. We outline the theoretical arguments underpinning the empirical developments and show that the evidence on private returns to the individual is compelling. Despite some of these issues surrounding the estimation of the return to schooling, our evidence, based on estimates from a variety of datasets and specifications, is that there is an unambiguously positive effect on the earnings of an individual from participation in education. Moreover, the size of the effect seems large relative to the returns on other investments.     

指数关联债券——城市公租房建设融资的途径探索

《十二五规划纲要》中提出的五年内建设3600万套保障性住房至少需要投资4万亿元,其中绝大部分需要地方政府融资.针对其中公租房存在的融资瓶颈,本文分析了发行市政债券的必要性,提出发行一种创新型产品——指数关联债券(Index Linked Bond),以促进地方政府的信用建设,改善融资环境.另外,本文量化分析了公租房的造...     

净现值法与内部收益率法在互斥方案投资决策中的应用研究

本文对净现值法与内部收益率法在互斥方案投资决策中的应用进行了研究,讨论了净现值、内部收益率、差量净现值和差量内部收益率之间的关系,在此基础上,考虑到项目计算期和原始投资额对互斥方案投资决策的影响,从投资效果和投资效率两个方面进行综合分析,给出互斥项目投资决策的评价标准。     

净现值与内部收益率法的比较分析研究

在进行投资项目比选时,使用净现值与内部收益率指标,有时会出现排序矛盾。本文就产生矛盾的原因进行了深入的比较分析,说明了这两个指标的经济含义,计算时的假设前提不同,使用条件有别,并依据增量法原则,给出了克服排序矛盾的有效方法。     

Non-Mortgage Factors Affecting Housing Sales and Construction: A Case Study of Transactions in 3 Counties of Southeastern Wisconsin, 1974-78

A bstract . The surge in the sale and construction of housing in three counties of southeastern Wisconsin between 1974 and 1978 could not be readily explained in terms of the credit cost and credit availability theory, the expectation theory or affordability. A questionnaire was sent to a random sample of home buyers. Their responses showed that the main motivating factors were investment purpose, the desire for a bigger and better home, and anticipation of higher home prices. Data supported their responses as the rate of return on investment in housing (equity appreciation) was significantly higher than both the mortgage interest rate and the return on alternative investments. Although median family income lagged behind home prices , it kept pace with ownership costs. Thus, given the demand, the critical factor was affordability.     

浅议利率波动对房地产投资信托基金的影响

房地产投资信托基金(Real estate investment trusts,REITs)的高分配收益特征使其对利率波动的敏感性较强,而房地产业自身也易受利率变化的影响。1973年和2005年美国联邦局对利率的上调对REITs价格和收益都造成了重大影响,利率上调,REITs经营成本增加,REITs的总体回报率减少,直接影响到其投资价值和回报率。     

人力资源投资风险及防范

在知识经济时代,知识及知识创新成为知识型企业生存与发展的首要条件,企业越来越重视人力资源投资,但也会遇到各种投资风险。企业应理性看待人力资本投资行为,尽可能减少投资风险,提高投资回报率。     

Project Appraisal for the Keynesian Investment Planner

This paper outlines a theory of project appraisal wherein the neoclassical premises of conventional cost-benefit analysis are replaced by their Keynesian counterparts. The paper shows how the social rate of return on public and private investment, the private and social discount rates, and other concepts used in cost-benefit analysis may be modified to take account of the income externalities generated by the multiplier, mark-up pricing, and the causal priority of investment over saving. This revised version was published online in July 2006 with corrections to the Cover Date.     

The Association Between the Level of International Diversification and Risk

This study analyzes the association between the degree of international involvement (DOI) and risk. Both systematic risk (measured by the market model beta) and total risk (measured by variance of return) are analyzed. Betas of fully diversified foreign stock portfolios are shown to be lower than betas of domestic portfolios. Therefore, if the beta of a foreign investment by a U.S. firm is equal to the average beta of an investment in the foreign market, then overall firm beta will decrease as DOI increases (hypothesis). While total risk might be decreased due to the diversification provided by increasing DOI, currency, political, and other risks could cause total risk to increase. Briefly, the results of this study suggest that (1) systematic risk is negatively related to DOI even after controlling for other factors known to be associated with systematic risk, (2) intertemporal changes in systematic risk are negatively related to intertemporal changes in DOI, and (3) in contrast to the results of previous research, DOI is not negatively related to total risk and, in fact, intertemporal changes in total firm risk are marginally positively related to intertemporal changes in DOI.
Our results suggest that increasing DOI decreases systematic risk but increases total risk. Year to year changes in both beta and variance of return appear to be related to year to year changes in DOI. While currency, political, and other risks of international operations increase total risk, these risks apparently can be diversified away resulting in a beta that behaves as a blending of its previous level and the beta of a fully diversified investment in the foreign market.     

The Great Recession and Marx's Crisis Theory

To help understand why the Great Recession occurred, this article focuses on its underlying causes and employs Karl Marx's theory of capitalist economic crisis. It shows that U.S. corporations' rate of return on fixed asset investment fell throughout the half‐century preceding the recession, and that this fall accounts for the entire decline in their rate of capital accumulation (productive investment). The investment slowdown led to a decline in the rate of economic growth, which was a main cause of rising debt burdens, as were stimulative fiscal and monetary policies that delayed but exacerbated the effects of the underlying economic problems. The article also refutes the claim that the rate of profit could not really have fallen because massive redistribution of income from wages to profits took place, and it argues that it is unlikely that major crises of capitalism can be eliminated.     

Fixed capital and internal rate of return

For a neo-Austrian process of production, more generally multisectoral fixed capital models, it is shown that the maximum rate of growth and the minimum rate of interest are both equal to the internal rate of return. This von Neumann type equality is here obtained in absence of truncation, i.e., free disposal of fixed capital. If several internal rates of return coexist, the economically significant one is the maximal one. This result provides theoretical grounds for the internal rate of return criterion in infinite horizon.     

Multiperiod analysis of a levered portfolio

The notion of Internal Financial Law for an investment is introduced. Through this generalization of the IRR a general notion of outstanding capital is obtained. After the introduction of a generalized version of NPV a decomposition of this parameter is offered which is strictly connected to the notion of ROE.Some applications to yield averaging for portfolios is provided.     

Wavelet decomposition of heterogeneous investment horizon

Building on the assumptions that investors are heterogeneous and that not all of them are fully rational, the market for trading any financial instrument can be separated into several segments, each associated with a different investment horizon. Thus, the expected return on an asset for each horizon maintains a different functional relationship with an expected market return. In other words, the trading of an asset by investors with heterogeneous investment horizons results in the coexistence of multiple security market lines. This proposed theory, which offers an alternative interpretation of investment behavior from that of the capital asset pricing model (CAPM) and the efficient markets hypothesis (EMH), is verified by using the newly introduced amalgamated discrete wavelet transform.