 Project Profitability from Society’s Point of ViewKåre P. Hagen
Chapter 19 in Making Essential Choices with Scant Information, 2009, pp 390-412 from Palgrave Macmillan Abstract: Abstract Profitability depends on how efficiently scarce resources are utilised. The relevant easure of efficiency depends on the economic objective. In a private company, the objective is to maximise its contribution to the income and wealth of the owners in the short or long term. The eco- nomic profit in each period is given by the maximum distribution to the owners, without reducing the firm’s market value. The value concept is forward-looking, in the sense that the market value of the company is the present value of the future cash flow that it is expected to generate for the owners. A positive present value means that the enterprise is yield- ing an average rate of the return on invested capital that is at least as large as the owners could have achieved by reinvesting the financial cap- ital in the external financial market, assuming this to be the alternative investment opportunity. Hence, profitability is defined in relation to the external rate of return opportunity for the capital required to operate the company. Keywords: Discount Rate; Market Price; Investment Cost; Excess Return; Collective Good (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-23683-7_19 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Palgrave Macmillan Books from Palgrave Macmillan |
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