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The investment rate of return at the end of the period: a future worth approach to capital budgeting

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  • Antonio Focacci

Abstract

The net present value (NPV) within the discounted cash-flow (DCF) framework is the preferred theoretical method at the academic level for dealing with capital budgeting problems. However, despite an elegant form and an undeniable technical allure in its capital asset pricing model (CAPM) version, a large number of situations raise serious concerns about the assumptions that must be made in order to successfully address practical cases. With the aim of obtaining a solution to this issue, the paper develops and proposes a new methodology based on a future worth (FW) approach labelled as investment rate of return at the end of the period (IRREP). With a couple of real-world cases, we present its effectiveness to contexts where traditional approaches are lacking due to serious theoretical inconsistencies.

Suggested Citation

  • Antonio Focacci, 2022. "The investment rate of return at the end of the period: a future worth approach to capital budgeting," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 13(1/2), pages 79-98.
    • Handle: RePEc:ids:ijrevm:v:13:y:2022:i:1/2:p:79-98
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