Concepts, Theory, and Techniques INFLATION, MAINTENANCE OF CAPITAL, AND THE IRR MODEL OF CAPITAL BUDGETING*
作者:
Surendra P. Agrawal,
期刊:
Decision Sciences
(WILEY Available online 1986)
卷期:
Volume 17,
issue 1
页码: 1-15
ISSN:0011-7315
年代: 1986
DOI:10.1111/j.1540-5915.1986.tb00209.x
出版商: Blackwell Publishing Ltd
关键词: Capital Budgeting and Managerial Accounting
数据来源: WILEY
摘要:
ABSTRACTBusinesses operating under inflationary conditions need capital‐budgeting models that help them judge the adequacy of returns on their investments and also allow them to keep capital intact by considering the erosive effects of inflation. The model proposed in this paper computes a modified internal rate of return (IRR); if cash inflows from a project are divided between earnings and recovery of capital, total recovery equals that amount which the capital‐budgeting concept adopted by the business specifies (such as the original investment in constant dollars or its replacement cost). Under this model, a project should be accepted only if this computed rate equals or exceeds a hurdle rate that consists of the inflation‐free rate of return plus the effect of inflation on such a return. Other modifications to the IRR model suggested in the literature do not completely satisfy the objective of capital budgeting under inflationary condi
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