Difference between revisions of "Real rate of return"
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According to [[Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition)]], | According to [[Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition)]], | ||
:[[Real rate of return]], ''r<small>r</small>''. Contains no adjustment for expected inflation. If net cash flows from a project do not include inflation adjustments, then the cash flows should be discounted at the real cost of capital. In a similar manner, the internal rate of return resulting from real net cash flows should be compared with the real cost of capital. | :[[Real rate of return]], ''r<small>r</small>''. Contains no adjustment for expected inflation. If net cash flows from a project do not include inflation adjustments, then the cash flows should be discounted at the real cost of capital. In a similar manner, the internal rate of return resulting from real net cash flows should be compared with the real cost of capital. | ||
| + | According to [[Cost Accounting by Horngren, Datar, Rajan (14th edition)]], | ||
| + | :[[Real rate of return]]. The rate of return demanded to cover investment risk (with no inflation). It has a risk-free element and a business-risk element. | ||
==Related concepts== | ==Related concepts== | ||
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*[[Introduction to Financial Management]]. | *[[Introduction to Financial Management]]. | ||
| − | [[Category: Financial Management]][[Category: Articles]] | + | [[Category: Financial Management]][[Category: Articles]][[Category: Accounting]] |
Revision as of 12:55, 11 July 2020
Real rate of return, rr, is a rate that contains no adjustment for expected inflation. If net cash flows from a project do not include inflation adjustments, then the cash flows should be discounted at the real cost of capital. In a similar manner, the internal rate of return resulting from real net cash flows should be compared with the real cost of capital.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Real rate of return, rr. Contains no adjustment for expected inflation. If net cash flows from a project do not include inflation adjustments, then the cash flows should be discounted at the real cost of capital. In a similar manner, the internal rate of return resulting from real net cash flows should be compared with the real cost of capital.
According to Cost Accounting by Horngren, Datar, Rajan (14th edition),
- Real rate of return. The rate of return demanded to cover investment risk (with no inflation). It has a risk-free element and a business-risk element.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
