New model reveals how to maximize value creation in investments.
The article explores how to evaluate investment opportunities by analyzing financial data in a structured way. By using pro forma financial statements, the researchers break down projects into investment and financing components to understand how value is created. They introduce new measures like project ROA and project WACC to assess the project's worth. The study emphasizes the importance of accounting rates of return in driving value and introduces the Average-Internal-Rate-of-Return approach to connect holding period rates with NPV.