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Historical stock prices have long been used to evaluate a stock’s future returns as well as the risks associated with those returns. Similarly, historical dividends have been used to evaluate the intrinsic value of a stock using, among other methods, a dividend discount model. In this chapter, we propose an alternate use of the dividend discount model to enable an investor to assess the risks associated with a particular stock based on its dividend history. In traditional applications of the dividend discount model for stock valuation, the value of a stock is the net present value of its future cash dividends. We propose an alternative approach in which we calculate the internal rate of return for a stream of future cash dividends assuming the current stock price. We use a bootstrapping approach to generate a stream of future cash dividends, and use a Monte Carlo simulation approach to run multiple trials of the model. The probability distribution of the internal rates of return obtained from the simulation model provides an investor with an expected percentage return and the standard deviation of the return for the stock. This allows an investor to not only compare the expected internal rates of return for a group of stocks but to also evaluate the associated risks. We illustrate this internal rate of return approach using stocks that make up the Dow Jones Industrial Average.

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.

The purpose of this paper is to examine the relative and incremental information content of a cash recovery‐based measure of performance, the estimated internal rate of return, vs an earnings‐based measure of performance, return on assets, in explaining firms' economic performance.

The paper uses the cash recovery rate that is based on continuous time analysis and U‐shaped cash flows to derive the estimated internal rate of return and compare it to return on assets. A cross‐sectional sample was used over a short interval (year 1993 and year 2005) and a time‐series sample (1993‐2005) to empirically examine the relative and incremental information content of the competing measures. Tobin's q and stock returns are used as performance benchmarks.

The results of the empirical tests indicate that the estimated internal rate of return provides better relative and incremental information content over earnings‐based measures of performance. Specifically, the empirical evidence shows that the estimated internal rate of return is consistently positively related to Tobin's q and stock returns over all measurement intervals.

These results imply that earnings‐based performance measures are less value relevant compared to cash recovery‐based measures. There are some limitations that may apply to this study. First, the systematic measurement error in estimating the cash recovery rate may not be independent of the measurement error in the estimated internal rate of return. Second, the performance benchmarks used in the study are not free from problems. Particularly, the return on assets is influenced by firms' rate of growth and the Tobin's q is not a perfect measure of business performance. Therefore, one avenue of future research is to assess the usefulness of financial accounting data for analysts forecast. Moreover, future research may also examine the role of institutional changes in financial reporting and its effect on the quality of earnings and economic performance.

This paper presents extended research on cash recovery‐based vs earnings‐based metrics as proxies for economic return using improved research designs, larger samples and new sensitivity analyses.

Examines the problem of multiple solutions in relation to the use of the internal rates of return (IRR) as a decision‐making criterion. Attempts to show that positive multiple IRRs occur only in a limited number of cases and in such cases the IRR is not the appropriate measure of return. Argues instead that the true rate of return for such projects is shown to be dependent on the cost of capital. Suggests two methods to deal with this problem: the extended yield method and the return on invested capital method.

This chapter uses a college-by-graduate degree fixed effects estimator to evaluate the returns to 19 different graduate degrees for men and women. We find substantial variation across degrees, and evidence that OLS overestimates the returns to degrees with the highest average earnings and underestimates the returns to degrees with the lowest average earnings. Second, we decompose the impacts on earnings into effects on wage rates and effects on hours. For most degrees, the earnings gains come from increased wage rates, though hours play an important role in some degrees, such as medicine, especially for women. Third, we estimate the net present value and internal rate of return for each degree, which account for the time and monetary costs of degrees. Finally, we provide descriptive evidence that satisfaction gains are large for some degrees with smaller economic returns, such as education and humanities degrees, especially for men.

The purpose of this paper is to introduce a capital return rate function for growth processes, and apply it to financial sustainability considerations in growing multiannual plants.

A partition function of change rate of capitalization is introduced, as well as that of capitalization itself, and the expected value of capital return rate is produced as the ratio of the two functions.

Financial sustainability significantly differs from maximum-yield sustainability, and does not depend on any external interest rate.

It is proposed that financial considerations should not be based on any arbitrary external interest. Neither should the shape of any yield function be neglected. Constancy of capital return rate in time is not assumed.

Two forestry examples show that the capital return rate is sensitive to rotation time, and in particular to the level of initial investment. The proposed procedure can be applied in the absence of periodic boundary conditions in time.

The methodology has not been applied in this field previously.

Evaluating capital investments for additions or modifications to warehouses, for replacement of equipment or for entirely new facilities is a complex activity which involves numerous financial, competitive and other considerations. The financial aspect of capital investments is addressed and it is shown how ten different investment criteria can be brought to bear on the capital investment issue. The ten investment criteria consist of five primary criteria and five secondary criteria. The primary criteria are payback period in years, non‐discounted rate of return on investment, internal rate of return, Baldwin rate of return, and benefit cost ratio. All ten criteria are described and suggestions are made when each criterion is appropriate.

The purpose of this paper is to investigate the rates of return and the risks of different types of educational paths – all leading to a tertiary educational degree. The paper seeks to distinguish a purely academic educational path from a purely vocational path and a mixed path with loops through both systems.

The paper studies the labor market outcome to compare earnings and calculate net return rates as well as risk measures to investigate whether different educational paths are characterized by different risk‐return trade‐offs. Entrepreneurs are separated from employees in order to examine whether for the same combination of education the labour market outcomes differ between the two groups.

The empirical results are based on the Swiss Labor Force Survey (SLFS) and demonstrate that mixed educational paths are well rewarded in the labor market. However, for entrepreneurs a high return is also associated with a high income variance.

The findings provide evidence for the existence of complementarities between vocational and academic education. Further research on mixed educational paths might provide more insight into this presumed relationship.

Since the results indicate that mixed educational paths are a worthwhile strategy, the permeability of a national education system is a very important educational policy issue.

The study is innovative in three ways: first, it focuses on complete educational paths and not just the highest educational degree. Second, an alternative measure, the Baldwin rate of return, is used to assess the profitability attached to different educational paths. Third, the income risk associated with each educational path is calculated.

Use of the internal rate of return (IRR) and the net present value (NPV) techniques in evaluating capital investments has been advocated by many financial writers. They almost always assert that these methods are superior to the more widely used payback and accounting rate of return techniques. The usual reason given centres around the concept of the time value of money, a factor that is absent in the latter method. Without doubt there is merit in this reasoning.