ABSTRACT
It is now generally accepted that the correct way to estimate the prospective yield from a project is to find that rate of discount at which the present value of the flow of receipts and expenditures attributable to the project is zero. When accountants assess the actual performance of an activity or a firm, however, the methods they use are very different. They subtract some rather arbitrary depreciation figure from the receipts to give a net profit figure, and they assess the value of the capital employed by cumulating expenditures and subtracting these depreciation allowances from them. The rate of return is then measured as the ratio of these two figures.
