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Discounted Cash Flow with Explicit Reinvestment Rates: Tutorial and Extension

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  • McDaniel, William R
  • McCarty, Daniel E
  • Jessell, Kenneth A

Abstract

This article discusses and critiques yield-based capital budgeting techniques that have arisen over the past thirty years. Some have theoretical inconsistencies, while some work well only for certain kinds of problems. A new method, the marginal return on invested capital, is presented. The method's application is general; it gives accept/reject signals and rankings consistent with the net present va lue method. Copyright 1988 by MIT Press.

Suggested Citation

  • McDaniel, William R & McCarty, Daniel E & Jessell, Kenneth A, 1988. "Discounted Cash Flow with Explicit Reinvestment Rates: Tutorial and Extension," The Financial Review, Eastern Finance Association, vol. 23(3), pages 369-385, August.
  • Handle: RePEc:bla:finrev:v:23:y:1988:i:3:p:369-85
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    1. repec:ebl:ecbull:v:7:y:2008:i:9:p:1-8 is not listed on IDEAS
    2. Costa, Joao P. & Melo, Paulo & Godinho, Pedro & Dias, Luis C., 2003. "The AGAP system: A GDSS for project analysis and evaluation," European Journal of Operational Research, Elsevier, vol. 145(2), pages 287-303, March.
    3. Kierulff, Herbert, 2008. "MIRR: A better measure," Business Horizons, Elsevier, vol. 51(4), pages 321-329.
    4. Kalu, Timothy Ch. U., 1995. "A uniform profit margin policy and its effects on mineral producing firms The case of the oil industry," Resources Policy, Elsevier, vol. 21(1), pages 61-72, March.

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