This paper deals with capital budgeting decisions under uncertainty. We present an Aggregate Return On Investment (AROI), obtained as the ratio of total (undiscounted) cash flow to total invested capital and show that it is a genuine rate of return which, compared with the risk-adjusted cost of...

Evaluating an industrial opportunity often means to engage in financial modelling which results in estimation of a large amount of economic and accounting data, which are then gathered in an economically rational framework: the pro forma financial statements. While the standard net present value...

This paper expands Teichroew, Robichek and Montalbano's (TRM) (1965a, b) rate-of-return model into a complete and general model of economic profitability for investment decision-making. Specifically, TRM's assumptions are relaxed and a project rate of return is derived, expressing the project's...

The recent notion of Average Internal Rate of Return (AIRR) [Magni 2010, The Engineering Economist, 55(2), 150-180] completely solves the long-standing problem of the internal rate of return (IRR). While the AIRR is a return measure, this paper presents a cash-flow measure, namely the ratio of...

This paper aims to provide a foundation for the notion of economic rate of return and investigate its relations with accounting rates of return. Introducing the notion of depreciation class (the set of depreciation schedules with the same aggregate book value) it is shown that the mean of the...