Remarks in the Context of 'The Case for a Generalized Net Present Value Formula'

摘要

In his three recent papers, R.G. Beaves develops an Overall Rate of Return (ORR) project evaluation criterion based on the concept of the so-called transition point (TP) which he has defined in two different versions. In the present contribution, it is shown that some projects may produce undefined ORRs for either TP version, and that other ORR-like criteria may also generate undefined results for projects for which the Net Present Value (NPV) criterion is defined. To eliminate the cases of the ORR undefinability, a generalization of the ORR criterion is proposed that makes this criterion fully NPV compatible and applicable to both investment and financing projects. This criterion embraces all the existing ORR approaches that are based on the notions of the initial and terminal wealths, including both of Beaves' approaches.