- Title Pages
- Dedication
- Preface
-
1 Modern Value Quandaries -
2 Theories of Value -
3 The Failure of the Neoclassical Investment Rule -
4 The Nature of the Firm -
5 The Organization and Scale of Private Business -
6 Accounting for the Firm -
7 VALUE IN CLASSICAL ECONOMICS -
8 VALUE IN NEOCLASSICAL ECONOMICS -
9 MODERN RECURSIVE EQUILIBRIUM AND THE BASIC PRICING EQUATION -
10 ARBITRAGE-FREE PRICING IN COMPLETE MARKETS -
11 Portfolio Pricing Methods -
12 Real Options and Expanded Net Present Value -
13 Traditional Valuation Methods -
14 PRACTICAL APPLICATION OF THE INCOME METHOD -
15 THE VALUE FUNCTIONAL: THEORY -
16 The Value Functional: Applications -
17 APPLICATIONS: FINANCE AND VALUATION -
18 Applications: Law and Economics -
Appendix A Key Formula and Notation Summary -
Appendix B Guide To The Solutions Manual -
Appendix C Description of Subject Companies - References
- Index
The Failure of the Neoclassical Investment Rule
The Failure of the Neoclassical Investment Rule
- Chapter:
- (p.23) 3 The Failure of the Neoclassical Investment Rule
- Source:
- The Economics of Business Valuation
- Author(s):
Patrick L. Anderson
- Publisher:
- Stanford University Press
This chapter presents telling evidence that the value of a firm is not the net present value of its expected profits. This is a provocative statement, and deserves careful support: the notion that the value of investments in firms is the expected net present value of their earnings is a pillar of Finance. The author summarizes the intellectual history of this notion, and then presents six major failings of the “NPV rule,” in particular, that decision-makers often don’t follow this rule.
Keywords: Net Present Value, NPV rule, neoclassical investment rule, Modigliani-Miller, real options, entrepreneurs, Finance
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- Title Pages
- Dedication
- Preface
-
1 Modern Value Quandaries -
2 Theories of Value -
3 The Failure of the Neoclassical Investment Rule -
4 The Nature of the Firm -
5 The Organization and Scale of Private Business -
6 Accounting for the Firm -
7 VALUE IN CLASSICAL ECONOMICS -
8 VALUE IN NEOCLASSICAL ECONOMICS -
9 MODERN RECURSIVE EQUILIBRIUM AND THE BASIC PRICING EQUATION -
10 ARBITRAGE-FREE PRICING IN COMPLETE MARKETS -
11 Portfolio Pricing Methods -
12 Real Options and Expanded Net Present Value -
13 Traditional Valuation Methods -
14 PRACTICAL APPLICATION OF THE INCOME METHOD -
15 THE VALUE FUNCTIONAL: THEORY -
16 The Value Functional: Applications -
17 APPLICATIONS: FINANCE AND VALUATION -
18 Applications: Law and Economics -
Appendix A Key Formula and Notation Summary -
Appendix B Guide To The Solutions Manual -
Appendix C Description of Subject Companies - References
- Index
