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The paper compares the Net Present Value and the Internal Rate of Return Methods paying particular attention to Mutually Exclusive Projects. In addition it looks into the reinvestment rate assumption concept. Using a different approach to those used to‐date, it is shown that the reinvestment assumption should not concern analysts, provided they use the Net Present Value Method.

Offers an analytical tool that measures reinvestment rate risk. Expands the knowledge of the concept of reinvestment vis‐...‐vis the internal rate of return via the external rate of return. Concludes that investors should prefer investments that are less sensitive to reinvestment rate assumption than vice versa.

It is well known that internal rate of return (IRR) and net present value (NPV) rankings of mutually exclusive investments are sometimes inconsistent. This inconsistency, when it occurs, requires decision makers to choose between the two ranking methods. The purpose of this paper is to deduce sufficient conditions for consistent IRR and NPV investment rankings of mutually exclusive investments.

Deductive reasoning is used to obtain the sufficient conditions required for consistent rankings of mutually exclusive investments.

There are different sufficient conditions (methods) that can be used to resolve inconsistent IRR and NPV rankings. However, the different methods do not necessarily produce the same consistent rankings. In particular, different size adjustment methods and reinvestment rate assumptions can produce different IRR and NPV consistent rankings. This paper suggests the appropriate criteria for selecting a particular method for ranking mutually exclusive investments.

Like all deduced models, the results apply only to the set of assumptions and preconditions adopted in the model. Furthermore, the application is to ranking mutually exclusive investments.

There is probably no other issue in the capital budgeting literature that has generated more attention and debate than the consistency (or lack thereof) between IRR and NPV rankings. This paper summarizes conditions that can be followed to resolve the conflict which should have near universal interest to those working in the capital budging area. This paper offers alternative methods for obtaining consistent IRR and NPV rankings which can be used to improve investment ranking decisions. The particular method used should depend on the decision environment. Guides for choosing the appropriate ranking method are described in the paper.

Significant decisions, projects, and investments are evaluated using either IRR or NPV methods. This paper shows that existing evaluation methods can lead to sub-optimal investment choices and provides an improved framework that facilitates better investment choices. Lacking an understanding of the sufficient conditions for IRR and NPV consistency – means that resource allocations have been made to investments and projects that are not optimal.

To the best of the authors’ knowledge, the results are this paper have not been published nor are they available elsewhere. That said, this paper builds on important earlier work which is carefully cited and credited.

Discounted cash flow (DCF), whether by capitalisation or by cash flow analysis, has many detractors because of a number of apparent problems such as the reinvestment assumption and the possibility of multiple rates of return. The capital recovery cum reinvestment aspects of Years' Purchase (YP) factors and DCF are discussed and it is demonstrated that Years' Purchase single rate principle is akin to Internal Rate of Return (IRR) and that Years' Purchase dual rate principle also has a DCF image known as the Modified Internal Rate of Return (MIRR). The difference between the YP models and the DCF models is to do with the level cash flows assumed in the former and the variability of the cash flows measured in the latter. MIRR was developed as an answer to the above problems and it is demonstrated in a case study in which the fallacy of the apparent problems is also demonstrated. MIRR has a place in the analysis of investment strategy, but IRR (equated yield) is shown to be satisfactory in the financial analysis and comparison of individual projects.

In a recent article, Dr Michael J. Crean (1993) asserts that reinvestment rates of interest must be explicitly taken into account when using internal rate of return (IRR) to compare mutually exclusive investment opportunities. To that end and to measure the risk perceived to be associated with reinvestment, Dr Crean presents two new concepts, namely the combined result of externally averaged numbers (CREAN) and the reinvestment rate risk ratio (R⁴). Presents a response to Dr Crean′s article. Begins by showing that the bulk of Dr Crean′s analysis is a reproduction of research that appeared in the finance literature more than two decades ago. It is also shown that variants of IRR which explicitly take reinvestment opportunities into account are of low economic validity. Such measures offer no benefit to naïve investors, since they are forced to assume that the spot rates of interest determined in the financial markets already incorporate a consensus view of future reinvestment opportunities. Selective investors are also not well served by such measures as the CREAN, as they (just like IRR) cannot be used as an absolute measure of investment attractiveness or to compare mutually exclusive alternatives in the absence of information on the market price of risk. Concludes by taking issue with Dr Crean′s assertion that duration and the R⁴ should both be used to gauge and compare the attractiveness of investments.

Capital budgeting plays an essential role in a firm's long‐term viability and survival. The capital budgeting process includes: identification of potential projects, prediction of possible outcomes, project selection, financing and implementation of the chosen project, and monitoring project performance (Mukherjee and Henderson, 1987). Although economic considerations should govern the capital budgeting decision, individual opinions and preferences often become primary factors affecting project selection.

The purpose of this paper is to contribute to financial managers’ capital budgeting decision-making processes by proposing a new paradigm of capital investment appraisal. The expected return, required return structure of the proposed purchasing power return (PPR) methodology eliminates the many flaws associated with the competing internal rate of return (IRR) and modified IRR (MIRR) techniques.

The authors provide a new framework for examining long-term investment projects through a percentage return prism. Unlike that of IRR and MIRR, mathematical consistency with net present value (NPV) is a design requirement.

PPR eliminates the many flaws found in the IRR and MIRR methodologies, is mathematically consistent with NPV, and identifies positive-NPV investments forecasted to reduce the company’s purchasing power. These projects are acceptable under NPV, but flagged for additional review and potential rejection. Created to examine projects on a percentage return basis, PPR employs market-based inflation rates to convert all cash flows into constant purchasing power units of measure. From these units, an expected real return is estimated and compared to the project’s inflation-adjusted required return, resulting in an accept/reject decision consistent with that of NPV.

The proposed PPR is a new paradigm of capital investment appraisal that eliminates the many problems found in the IRR and MIRR techniques, is mathematically consistent with the NPV method, and helps financial decision makers examine investment projects on an expected percentage return basis. PPR also flags for further review projects expected to actually reduce the company’s purchasing power.

The purpose of this paper is to assess the value and risks of Disney's 2009 $4 billion acquisition of the Marvel Entertainment Group (Marvel) in a case study utilizing the modern Graham and Dodd valuation approach.

The paper presents a detailed valuation of Marvel in 2009 drawing on previously published Graham and Dodd methodological materials and Marvel's publicly available financial reports.

Disney's $4 billion acquisition price for Marvel contained considerable risks based on certain valuation assumptions, which were identified in the context of our analysis.

This acquisition is a useful one for executives to study because it involves a situation many of them could face: evaluating the purchase of a great company that is seemingly a strategic fit and offered at what appears to be a reasonable price. Assessing such opportunities utilizing the modern Graham and Dodd valuation approach facilitates greater levels of insight into key assumptions, value drivers, and risks.

This is a methodology that has proved useful to successful value investors over time.

Lessons executives in many industries can learn from a Graham and Dodd‐based valuation of the 2009 Disney acquisition of Marvel include: better risk assessment, valuation of entertainment property assets and franchise assessment.

Repetition of human activity tends to cause a certain amount of learning to occur. This learning curve (LC) effect has been widely discussed in the business literature and appears to be applicable in many diverse settings (for example, see Belkaoui (1983), Imhoff (1978), and Yelle (1979)). Many years ago companies in the aircraft industry discovered that certain repetitive processes could be described mathematically and that such models could be used to estimate the amount of time necessary to complete a task as it is repeated. It was determined that the more complex the activity, the greater the potential to achieve decreases in the time necessary to complete each succeeding unit of production.

There are techniques available for deciding on initial project viability. Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR) and other techniques are well known and widely used in an effort to estimate a project's initial profitability and feasibility. The purpose of this article is to illustrate the use of two of these techniques to evaluate in‐progress projects and to measure the financial performance of an entire group of projects in a division over a specified time period. Many managers would like a system that allows them to evaluate on‐going projects and a system that allows them to state, for example, how one entire division performed, on all of its projects, over the 1990–1995 time period. Among other things, this will allow management to evaluate the performance of one division relative to other divisions.