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Management Sciences and Quantitative Methods Commons™
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Full-Text Articles in Management Sciences and Quantitative Methods
An Easy Method To Introduce Mirr Into Introductory Finance Classes, Tom Arnold, Terry D. Nixon
An Easy Method To Introduce Mirr Into Introductory Finance Classes, Tom Arnold, Terry D. Nixon
Finance Faculty Publications
In this paper, the modified internal rate of return (MIRR) is demonstrated to be a holding period return calculation that is not dependent on knowing a project's internal rate of return (IRR) nor the process for finding the IRR. Further, the MIRR calculation can be directly connected to the calculation of the profitability index (PI) and the net present value (NPV) if project cash flows are discounted using a firm's weighted average cost of capital. This connection to the PI and NPV allows for an intuitively appealing presentation of the MIRR calculation.
Adding Depth To The Discussion Of Capital Budgeting Techniques, Tom Arnold, Terry D. Nixon
Adding Depth To The Discussion Of Capital Budgeting Techniques, Tom Arnold, Terry D. Nixon
Finance Faculty Publications
The subject of capital budgeting generally encompasses a significant percentage of any beginning finance course with net present value (NPV) often receiving the most attention. Even after this substantial time allotment, critical assumptions and comparisons of the different techniques (such as payback period, discounted payback period, NPV and IRR) are frequently glossed over due to time constraints. Consequently, the goal of this paper is to present these non-NPV techniques in a manner that allows the beginning finance student to expeditiously see the intuition, inherent assumptions, and any connection with the more popular NPV calculation. A small portion of this paper …
Actuarial Techniques In Risk Pricing And Cash Flow Analysis For U.K. Bank Loans, Philip Booth, Duncan E.P. Walsh
Actuarial Techniques In Risk Pricing And Cash Flow Analysis For U.K. Bank Loans, Philip Booth, Duncan E.P. Walsh
Journal of Actuarial Practice (1993-2006)
A cash flow model is developed to set the price for a loan to a borrower with known risks. Similarities are noted between this model and those used for profit testing in life insurance. We emphasize aspects that reasonably can be treated in several ways and also indicate where the cash flow model differs from the pricing methods usually employed in bank lending. The sensitivity of interest rates to various parameters of the model such as the length of loan and the expected default rate is examined. Also, we examine how features of loans, including cash back and early repayments, …