A Note on "Time and Investment"

Wright, Colbrin

doi:10.2307/2549248

Cited by 10 publications

(2 citation statements)

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“…Problems of existence and uniqueness of IRR related to nonmonotonicity were soon recognized (Boulding 1936, Wright 1936, Samuelson 1937. However, only two decades later the problem started to attract scholars' attention (e.g., Lorie andSavage 1955, Solomon 1956): Existence and uniqueness of in eq.…”

Section: Irr Acceptability Criterion Rule (I) An Investment Is Accementioning

confidence: 99%

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

Magni

2016

Journal of Mathematical Economics

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Abstract. 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 NPVconsistent 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 domainspecific 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.

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Section: Irr Acceptability Criterion Rule (I) An Investment Is Accementioning

confidence: 99%

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

Magni

2016

Journal of Mathematical Economics

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“…. ., a } is said to have a unique internal rate of return if there is *University of Mtchigan.iSee, e.g., Wright[12], Samuelson[8], Lorie and Savage[6], Solomon[9], and Hirshleifer[3].1835 This content downloaded from 144.82.108.120 on Tue, 31 May 2016 14:43:12 UTC All use subject to http://about.jstor.org/terms…”

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confidence: 99%