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Well-Behaved Cash Flows

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  • Saak, Alexander
  • Hennessy, David A.

Abstract

Internal rate of return and net present value statistics for evaluating projects may display anomalous behavior when cash flows change sign more than once. We identify necessary and sufficient conditions such that these anomalies are precluded. We also identify a linear dominance condition on payoffs sufficient to order internal rates.

Suggested Citation

  • Saak, Alexander & Hennessy, David A., 2001. "Well-Behaved Cash Flows," Staff General Research Papers Archive 5111, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:5111
    as

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    References listed on IDEAS

    as
    1. David Promislow, S. & Spring, David, 1996. "Postulates for the internal rate of return of an investment project," Journal of Mathematical Economics, Elsevier, vol. 26(3), pages 325-361.
    2. Oehmke, James F., 2000. "Anomalies in net present value calculations," Economics Letters, Elsevier, vol. 67(3), pages 349-351, June.
    3. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    4. Gollier Christian, 1995. "The Comparative Statics of Changes in Risk Revisited," Journal of Economic Theory, Elsevier, vol. 66(2), pages 522-535, August.
    5. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    6. Bernhard, Richard H., 1980. "A Simplification and an Extension of the Bernhard-deFaro Sufficient Condition for a Unique Non-Negative Internal Rate of Return," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(1), pages 201-209, March.
    7. 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.
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    Cited by:

    1. Feng, Hongli, 2005. "The dynamics of carbon sequestration and alternative carbon accounting, with an application to the upper Mississippi River Basin," Ecological Economics, Elsevier, vol. 54(1), pages 23-35, July.
    2. Hennessy, David A. & Saak, Alexander E., 2003. "State-Contingent Demand for Herbicide-Tolerance Seed Trait," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(1), pages 1-14, April.

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