Economics, Econometrics and Finance
8 years ago

New Investment Method Could Revolutionize Decision-Making in Imperfect Markets

1 view
The American Economist
Rate of Return and Optimal Investment in an Imperfect Capital Market
James P. Liu, Roland Y. Wu

Paper Summary

The article discusses how firms make investment decisions in an uncertain market. It compares two methods for evaluating investment projects: net present value (NPV) and internal rate of return (IRR). NPV measures projects by size, favoring those with large initial costs, while IRR has issues with reinvestment assumptions. The research highlights challenges in ranking investment projects and determining optimal investment levels.

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