A consistent financial metric to maximize sustainable strategic decisions

David A. Volkman
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David A. Volkman: University of Nebraska Omaha, USA

in ABEM Conference Proceedings from Academy of Business and Emerging Markets (ABEM), Canada, currently edited by Satyendra Singh

Abstract: This research develops a yield-based capital budgeting metric that is consistent in maximizing corporate strategic decisions in multiple economic environments. Academic studies surveying corporate management consistently conclude that international corporate management prefers a yield-based capital budgeting method, such as the Return on Investment (ROI) or the Internal Rate of Return (IRR), to a discount cash flow model, such as the Net Present Value (NPV) or the Economic Equivalent Annual Annuity (EAA). This preference is strong, with the NPV and EAA methods typically ranked least favorable among international corporate management, while yield-based methods ranked most favorable. However, previous yield-based methods need to be more consistent in maintaining economic sustainability or maximizing the strategic value of the firm. The capital budgeting method developed in this study appeases international corporate management's preference for a yield-based measure while maintaining the Fisherian assumption of wealth maximization and assisting in the sustainability of the firm. To maximize the strategic decisions of a corporation, this study demonstrates that the yield-based measure must distinguish between financing and investment cash flows, adjust to investments with differing economic lives, recognize the time disparity in the cash flow stream between mutually exclusive investments, and maintain the value additive principle.

Keywords: financial metric; sustainable; strategic; decisions (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:ris:abemcp:023481

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