Chisini means and rational decision making: Equivalence of investment criteria

Carlo Alberto Magni, Piero Veronese and Rebecca Graziani

MPRA Paper from University Library of Munich, Germany

Abstract: A plethora of tools are used for investment decisions and performance measurement, including Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), Modified Internal Rate of Return (MIRR), Average Accounting Rate of Return (AARR). All these and other known metrics are generally considered non-equivalent and some of them are regarded as unreliable or even naive. Building upon Magni (2010a, 2013)'s Average Internal Rate of Return (AIRR), we show that the notion of Chisini mean enables these tools to be used as rational decision criteria. Specifically, we focus on 11 metrics and show that, if properly used, they all provide equivalent accept-reject decisions and equivalent project rankings. Therefore, the intuitive notion of mean is the founding basis of investment decision criteria.

Keywords: Value creation; accept-reject decisions; project ranking; equivalence class; Net Present Value; Average Internal Rate of Return (search for similar items in EconPapers)
JEL-codes: G11 G12 G3 G31 M41 (search for similar items in EconPapers)
Date: 2017-09
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Citations: View citations in EconPapers (1)

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