New capital investment appraisal method eliminates flaws and boosts financial decision-making.
The article introduces a new way to evaluate investments called Purchasing Power Return (PPR). PPR helps financial managers make better decisions by addressing the flaws in traditional methods like Internal Rate of Return (IRR). Unlike IRR, PPR is consistent with Net Present Value (NPV) and considers the impact of inflation on a project's returns. By using market-based inflation rates, PPR converts cash flows into constant purchasing power units, allowing for a more accurate assessment of a project's potential impact on a company's purchasing power. This new approach helps identify investments that may reduce a company's purchasing power, even if they have a positive NPV, leading to more informed decision-making.