Maria Illes

The aggregate capital needs are a new business economics category which provides a new aspect to evaluate investment projects. The literature does not deal with this category as the project’s total financial resource requirement. It is the total capital tied-up for the project in its lifetime. For calculation of it, the yearly capital tie-ups are being added together. Based on this, it can be examined the total capital amount, which results in a given net present value, or the total capital amount, which operates according to the given rate of profitability. The paper interprets the category, presents its relationship with the interest rate, and also presents the method of calculation based on model editing. In the case of the internal rate of return, the estimation may be greatly simplified. Instead of determining the yearly amounts and summation of these, the estimation can be carried out also with a simple division of two data. The paper demonstrates the possibility of simplification and shows an example to present the interrelations of data.The aggregate capital needs are a new business economics category which provides a new aspect to evaluate investment projects. The literature does not deal with this category as the project’s total financial resource requirement. It is the total capital tied-up for the project in its lifetime. For calculation of it, the yearly capital tie-ups are being added together. Based on this, it can be examined the total capital amount, which results in a given net present value, or the total capital amount, which operates according to the given rate of profitability. The paper interprets the category, presents its relationship with the interest rate, and also presents the method of calculation based on model editing. In the case of the internal rate of return, the estimation may be greatly simplified. Instead of determining the yearly amounts and summation of these, the estimation can be carried out also with a simple division of two data. The paper demonstrates the possibility of simplification and shows an example to present the interrelations of data.

This paper shows that the various rating calculation methods of business efficiency calculations are built according to a​ unified logic system. It provides an overview of the rich methodological background and presents a transparent system picture. The analysis shows that the general return requirement is the starting point for business efficiency calculation methods, pointing out that only those methods of calculation are suitable for measuring business efficiency which is logically consistent with the general return requirement. It shows also the essentials of the mixed profit categories and presents and interprets the method elements of business efficiency calculations, which can be used to construct various calculation formulas for different business matters. The uniform logic system of method elements may form a guiding thread when selecting and evaluating the correctness of the method used. The paper draws attention to the fact that a number of efficiency-computing conceptions obviously fail to comply with the general return requirement and consequently in such cases may also be preferred less efficient or even inefficient variants.

SUMMARY The economy, with its driving forces, operating conditions and the consumers' motivation, plays the determining role in the forming of sustainability. The present paper examines a narrower issue within this: the structure of an enterprise model that can be operated in accordance with the requirements of sustainability. The examined model variants essentially differ in risk holder types. The paper discusses two very important criteria of matching to sustainability. On one hand, the smooth operation of the company should not require the existence of the natural rate of unemployment; on the other hand, the driving force related to the success of the enterprise should remain within the company. The model where these two requirements are met concurrently is the working people's enterprise basic model. When the two criteria mentioned above are met, various model variants may be viable. The presentation of the operating conditions and operating mechanisms of these models can build new aspects in the process of sustainability research.

SUMMARY The paper explores a few hidden problems of the reinvestment rate assumption. The automatism of net present value method creates and applies a very special reinvestment rate assumption. This assumption does not disturb the evaluation of investment projects with orthodox cash flow patterns. However, in the case of unorthodox cash flow patterns, automatism constructs a serious mistake in the calculations. In this case, the net present value provides wrong information about the economic efficiency. However, according to the general academic opinion, the net present value method is suitable for evaluation in the case of unorthodox cash flow patterns as well, as there can be only one net present value as opposed to the opportunity of several internal rates of return. The paper sets out to prove that this way of evaluation is wrong, and works out a solution based on the real economic basis. Keywords: reinvestment rate assumption, net present value, internal rate of return, orthodox and unorthodox cash flow pattern, ranking, aggregate capital needs.

SUMMARY The paper explores a few hidden problems of the reinvestment rate assumption. The automatism of net present value method creates and applies a very special reinvestment rate assumption. This assumption does not disturb the evaluation of investment projects with orthodox cash flow patterns. However, in the case of unorthodox cash flow patterns, automatism constructs a serious mistake in the calculations. In this case, the net present value provides wrong information about the economic efficiency. However, according to the general academic opinion, the net present value method is suitable for evaluation in the case of unorthodox cash flow patterns as well, as there can be only one net present value as opposed to the opportunity of several internal rates of return. The paper sets out to prove that this way of evaluation is wrong, and works out a solution based on the real economic basis. Keywords: reinvestment rate assumption, net present value, internal rate of return, orthodox and unorthodox cash flow pattern, ranking, aggregate capital needs.

Fisher’s rate means the interest rate where the net present values of two mutually exclusive projects become equal. The paper examines the background and the circumstances of conformation of Fisher’s rate in connection with the aggregate capital needs. Aggregate capital needs is a new conception and gives a new viewpoint to investment project decisions. The paper defines the special content of aggregate capital needs, and compiles an index number for it. The analysis widens knowledge regarding the content of net present value, and highlights the importance of taking the aggregate capital needs into consideration. Fisher’s rate only means useful information in practice if the ranking is made based on the net present value. However, this principle of ranking is in contradiction with the concept of long-term profit maximization. The transformed net present value, which is free of distorting effects (and assuming equal required rates of return,) gives the same ranking list as the internal rate of return. Therefore, Fisher’s rate has no importance in business decisions.
Keywords: aggregate capital needs; investment project decisions; net present value; internal rate of return; ranking; Fisher’s rate
Journal of Economic Literature (JEL) code: M21

There are some scientific questions related to the NPV and IRR which have not been worked up. From these issues, this paper discusses the economic content of the two categories and the questions of usability for project evaluation and ranking. The main research methods are methodological analysis, model editing and examination of the mathematical formulas. The paper proves that the NPV is the discounted amount of the surplus profit generated above the profit requirement, and points out, that content band of the real reinvestment rate assumption is fundamentally different from everything that can be found about this in the literature. Because of the NPVs are not comparable, the paper systematically eliminates the distortion effects. Thus, the NPV transforms into a special kind of rate, namely, the difference between the factual rate and the required rate of return. This NPV rate (with equal required rates of return) gives the same ranking list as the IRR. The aggregate capital needs is a new conception and gives a new viewpoint to analysis of investment projects evaluation. The paper defines the special content of aggregate capital needs and compiles an index number for it. The paper examines the two main tools of investment project evaluation, i.e. the net present value (NPV) method and internal rate of return (IRR) method. Application appropriateness of the two methods is sharply debated from the first half of the last century. Many writings already were born in the 1950s (see Alchian, 1955; Solomon, 1956; Bierman and Smidt, 1957). Since then the discussion is running. The literature of finance expresses a very determined preference for NPV. In spite of this, business professionals of developed countries apply the IRR in a large proportion for decision-making. For example Arnold and Hope (1990) cite two surveys done in the 1970s and 1980s, demonstrating that the largest British companies (that are otherwise able to pay the best experts) definitely rank the IRR higher than the NPV in practice. They mention that a lot of American surveys prove that the practice prefers the IRR in the USA as well. The practical method preferences are widely researched. Szűcsné Markovics (2012) gives a literature review about the researches on methods which are used by companies throughout the world. Illés and Keszthelyi (1998), Illés (2000) and Daróczi (2004) examined the practical use of different methods based on empirical researches on the complex evaluation of decision-making process. According to my experiences, in business economics literature generally there is not a strong method preference, but the IRR method often seems to be better. Different disciplinary roots According to Volkman's (1997) research, the emergence of method qualification contradiction could be attributed to the fact that finance propagates the more