IDEAS home Printed from https://ideas.repec.org/p/ags/cuaewp/18804.html
   My bibliography  Save this paper

An Analysis Of Alternative Net Present Value Capital Investment Decision Models

Author

Listed:
  • Bradford, Garnett L.
  • Miller, Stephen E.

Abstract

We have found that the disagreement between Returns-to-Assets (RTA) and Returns-to-Equity (RTE) proponents is not confined to agricultural economics. Depending on the course they are taking and the accompanying text, students are likely to learn that there is a "right" way to calculate Net Present Values (NPVs), either by the RTA method or the RTE method. In most cases, only one of the two methods is discussed and illustrated with numerical examples. Less common are texts that compare the two methods, discuss their underlying assumptions, or show how the NPVs from the two methods can be reconciled. The paper is organized as follows. The first section of the main body of the paper provides a comparative overview of the RTA and RTE methods; the second section discusses our textbook survey; the final section offers our conclusions. Appendix A contains a brief history of the theoretical development of discounted cash flow (DCF) concepts. Appendix B contains additional details on defining components of NPV models. Finally, Appendix C is a listing of some additional references.

Suggested Citation

  • Bradford, Garnett L. & Miller, Stephen E., 1998. "An Analysis Of Alternative Net Present Value Capital Investment Decision Models," Working Papers 18804, Clemson University, Department of Agricultural and Applied Economics.
  • Handle: RePEc:ags:cuaewp:18804
    DOI: 10.22004/ag.econ.18804
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/18804/files/wp102798.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.18804?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Myers, Stewart C, 1974. "Interactions of Corporate Financing and Investment Decisions-Implications for Capital Budgeting," Journal of Finance, American Finance Association, vol. 29(1), pages 1-25, March.
    2. Beranek, William, 1980. "The AB Procedure and Capital Budgeting," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(2), pages 391-406, June.
    3. K. E. Boulding, 1935. "The Theory of a Single Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 49(3), pages 475-494.
    4. Beranek, William, 1977. "The Weighted Average Cost of Capital and Shareholder Wealth Maximization," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(1), pages 17-31, March.
    5. Fisher, Irving, 1907. "The Rate of Interest," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number fisher1907.
    6. R. K. Perrin, 1972. "Asset Replacement Principles," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(1), pages 60-67.
    7. Beranek, William, 1975. "The Cost of Capital, Capital Budgeting, and the Maximization of Shareholder Wealth," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(1), pages 1-20, March.
    8. Clark Edwards, 1959. "Resource Fixity and Farm Organization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 41(4), pages 747-759.
    9. Paul A. Samuelson, 1937. "Some Aspects of the Pure Theory of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 51(3), pages 469-496.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joao Marques Silva & Jose Azevedo Pereira, 2017. "Over-Valuation: Avoid Double Counting when Retaining Dividends in the FCFE Valuation," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 8(4), pages 107-114, October.
    2. Magni, Carlo Alberto, 2016. "Capital depreciation and the underdetermination of rate of return: A unifying perspective," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 54-79.
    3. Weiland, Brandon & Sesmero, Juan Pablo & Preckel, Paul & Wetzstein, Michael E., 2017. "Can Wood Pellets Save Coal?," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258250, Agricultural and Applied Economics Association.
    4. Keef, Stephen P & Khaled, Mohammed S & Roush, Melvin L, 2011. "Miller's (2009) WACC model: An extension," Working Paper Series 1995, Victoria University of Wellington, School of Economics and Finance.
    5. Stutzman, Sarah & Weiland, Brandon & Preckel, Paul & Wetzstein, Michael, 2017. "Optimal replacement policies for an uncertain rejuvenated asset," International Journal of Production Economics, Elsevier, vol. 185(C), pages 21-33.
    6. Petri P. Karenlampi, 2024. "Path-dependency and leverage effect on capital return in periodic growth processes," Papers 2403.08678, arXiv.org, revised Apr 2024.
    7. Unknown, 1998. "References/Literature Cited," Commodity Costs and Returns Estimation Handbook,, Iowa State University.
    8. Keef, Stephen P & Khaled, Mohammed S & Roush, Melvin L, 2011. "Miller's (2009) WACC model: An extension," Working Paper Series 18608, Victoria University of Wellington, School of Economics and Finance.
    9. Magni, Carlo Alberto, 2009. "Splitting up value: A critical review of residual income theories," European Journal of Operational Research, Elsevier, vol. 198(1), pages 1-22, October.
    10. Christian Johnson & George G Kaufman, 2007. "Un banco, con cualquier otro nombre…," Boletín, CEMLA, vol. 0(4), pages 185-199, Octubre-d.
    11. Vincent Carret, 2021. "Rupture and continuity in the original divide between micro-dynamics and macro-dynamics," Working Papers halshs-03242180, HAL.
    12. Christian Calmès & Raymond Théoret, 2021. "Portfolio analysis of big US banks’ performance: the fee business lines factor," Journal of Banking Regulation, Palgrave Macmillan, vol. 22(2), pages 112-132, June.
    13. Basso, Antonella & Peccati, Lorenzo A., 2001. "Optimal resource allocation with minimum activation levels and fixed costs," European Journal of Operational Research, Elsevier, vol. 131(3), pages 536-549, June.
    14. Irving Fisher Committee, 2003. "Abstracts of papers to be presented at the 54th ISI Session, Berlin, August 2003," IFC Bulletins, Bank for International Settlements, number 15.
    15. Axel Pierru & Denis Babusiaux, 2000. "Coût du capital et étude de rentabilité d'investissement : une formulation unique de l'ensemble des méthodes," Working Papers hal-02437423, HAL.
    16. Navarrete, Eduardo, 2012. "Modeling optimal pine stands harvest under stochastic wood stock and price in Chile," Forest Policy and Economics, Elsevier, vol. 15(C), pages 54-59.
    17. Sonin, Isaac M. & Whitmeyer, Mark, 2020. "Some nontrivial properties of a formula for compound interest," Finance Research Letters, Elsevier, vol. 33(C).
    18. Hakan Berument & Nildag Basak Ceylan & Hasan Olgun, 2007. "Inflation uncertainty and interest rates: is the Fisher relation universal?," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 53-68.
    19. Safieddine Bouali, 2002. "The Hunt Hypothesis and the Dividend policy of the firm. The Chaotic Motion of the Profits," Computing in Economics and Finance 2002 316, Society for Computational Economics.
    20. Mabid Ali Al-Jarhi, 2020. "Reforming Islamic Finance إصلاح المالية الإسلامية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 33(2), pages 101-107, July.

    More about this item

    Keywords

    Research Methods/ Statistical Methods;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:cuaewp:18804. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/dacleus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.