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On Decomposing Net Final Values: Eva, Sva and Shadow Project

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Author Info
Carlo Magni ()

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Abstract

A decomposition model of Net Final Values (NFV), named Systemic Value Added (SVA), is proposed for decision-making purposes, based on a systemic approach introduced in Magni [Magni, C. A. (2003), Bulletin of Economic Research 55(2), 149–176; Magni, C. A. (2004) Economic Modelling 21, 595–617]. The model translates the notion of excess profit giving formal expression to a counterfactual alternative available to the decision maker. Relations with other decomposition models are studied, among which Stewart’s [Stewart, G.B. (1991), The Quest for Value: The EVA™ Management Guide, Harper Collins, Publishers Inc]. The index here introduced differs from Stewart’s Economic Value Added (EVA) in that it rests on a different interpretation of the notion of excess profit and is formally connected with the EVA model by means of a shadow project. The SVA is formally and conceptually threefold, in that it is economic, financial, accounting-flavoured. Some results are offered, providing sufficient and necessary conditions for decomposing NFV. Relations between a project’s SVA and its shadow project’s EVA are shown, all results of Pressacco and Stucchi [Pressacco, F. and Stucchi, P. (1997), Rivista di Matematica per le Scienze Economiche e Sociali 20, 165–185] are proved by making use of the systemic approach and the shadow counterparts of those results are also shown. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s11238-005-8631-5
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Publisher Info
Article provided by Springer in its journal Theory and Decision.

Volume (Year): 59 (2005)
Issue (Month): 1 (08)
Pages: 51-95
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Handle: RePEc:kap:theord:v:59:y:2005:i:1:p:51-95

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Web page: http://www.springerlink.com/link.asp?id=100341

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Related research
Keywords: decomposition; excess profit; systemic; shadow project; EVA; SVA; Net Final Value; C00; G00; G31;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gronchi, Sandro, 1986. "On Investment Criteria Based on the Internal Rate of Return," Oxford Economic Papers, Oxford University Press, vol. 38(1), pages 174-80, March. [Downloadable!] (restricted)
  2. Carlo Alberto Magni, 2003. "Decomposition of Net Final Values: Systemic Value Added and Residual Income," Bulletin of Economic Research, Blackwell Publishing, vol. 55(2), pages 149-176, 04. [Downloadable!] (restricted)
  3. Carlo Alberto, Magni, 2008. "Splitting Up Value: A Critical Review of Residual Income Theories," MPRA Paper 10506, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Ezra Solomon, 1956. "The Arithmetic of Capital-Budgeting Decisions," Journal of Business, University of Chicago Press, vol. 29, pages 124. [Downloadable!]
  5. Roberto Ghiselli Ricci & Carlo Alberto Magni, 2006. "Economic value added and systemic value added: symmetry, additive coherence and differences in performance," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(3), pages 151-154, May. [Downloadable!] (restricted)
    Other versions:
  6. Magni, Carlo Alberto, 2000. "Decomposition of a Certain Cash Flow Stream: Differential Systemic Value and Net Final Value," MPRA Paper 7308, University Library of Munich, Germany. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carlo Alberto, Magni, 2008. "Splitting Up Value: A Critical Review of Residual Income Theories," MPRA Paper 10506, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Roberto Ghiselli Ricci & Carlo Alberto Magni, 2006. "Economic value added and systemic value added: symmetry, additive coherence and differences in performance," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(3), pages 151-154, May. [Downloadable!] (restricted)
    Other versions:
  3. magni, Carlo Alberto, 2006. "Zelig and the Art of Measuring Excess Profit," MPRA Paper 5663, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Magni, Carlo Alberto, 2007. "In search of the "lost capital". A theory for valuation, investment decisions, performance measurement," MPRA Paper 5719, University Library of Munich, Germany. [Downloadable!]
  5. Carlo Alberto Magni, 2007. "A Sum&Discount Method for Appraising Firms: An Illustrative Example," Department of Economics 572, University of Modena and Reggio E., Faculty of Economics "Marco Biagi". [Downloadable!]
    Other versions:
  6. Magni, Carlo Alberto, 2005. "Economic profit, NPV, and CAPM: Biases and violations of Modigliani and Miller's Proposition I," MPRA Paper 6359, University Library of Munich, Germany, revised 22 Jun 2008. [Downloadable!]
  7. Magni, Carlo Alberto, 2003. "Opportunity cost, excess profit and counterfactual conditionals," MPRA Paper 5695, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  8. Magni, Carlo Alberto, 2007. "Residual income and value creation: An investigation into the lost-capital paradigm," MPRA Paper 7335, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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