ABSTRACT
This introduction presents an overview of key concepts discussed in the subsequent chapters of this book. The book addresses the problem of using accounting data to estimate the economic rate of return. The economic rate of return is defined as the internal rate of return on a series of cash inflows and outflows. Most of this work has sought to determine the conditions under which the accounting rate of return would be a good estimate of the economic rate of return. The firm is assumed to invest in a project or mix of projects depreciated by a standard method such as straight-line depreciation or sum-of-the-years digits depreciation. The project generates a series of cash flows. In approximating the rate of interest on an annuity or bond, complete information about cash flows is given and the approximation of the interest rate is necessary because of the difficulty of finding a solution to a polynomial equation.
