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This article explores the relationship between internal rates of return and common rules of thumb used in capital investment analysis. The authors reexamine questions that were originally posed by economist Myron Gordon while researching the relationship between payback periods, accounting rates of return and the internal rate of return. The authors attempt to achieve generality by viewing these rules of thumb as explicit functions of two variables: the investment proposals' economic lives and their internal rates of return.

This discussion has been limited to a very narrow point, that of the selection of the criterion to be used in turn for the selection of an optimum subset from among a larger set of mutually exclusive capital budgeting proposals. it has been shown that neither of the two most preferred criteria considered, present value or internal rate of return, makes any assumption about the reinvestment of cash flows from the investments. The selection of a particular criterion to be used, however, may imply a weak assumption about the relative rate of return on reinvestment if the two criteria yield conflicting recommendations as to the optimum choice. A more precise determination of an optimum capital investment strategy should make specific assumptions about the rates of return to be earned on the reinvestment of cash flows. If many alternative combinations are possible, a programming approach is necessary. No consideration has been given to the contemporary theories of risk, where the "discount" rate is recognized as including a factor for risk, which may vary from one project to another. Such complexities as these and a more thorough consideration of the proper rate of return on reinvestment should be the subject for another paper. [ABSTRACT FROM AUTHOR]

This paper is intended to contribute to the theory of capital budgeting by showing, conclusively, that although the cost of capital (as generally defined) is the correct cut-off point for one investment decision, it is not correct when more than one is being considered. When several investments are simultaneously evaluated, the required rate of return should be higher than the cost of capital. The authors propose for the multi-investment case, instead of using the cost of capital as a hurdle rate, the following decision-rule: Rank projects according to their rate of return, then consider each sequentially and accept the project if its contribution to the percentage increase in profits (taking into consideration all previously accepted projects) exceeds the percentage increase in equity capital required for that project. [ABSTRACT FROM AUTHOR]

The article examines the deferral method using a criterion of earnings and rate-of-return accuracy. The author states that the deferred method of accounting for the problem of accelerated tax depreciation has come under considerable attack because it results in a deferral account which grows in amount with the growth in a firm's rate of spending on depreciable assets. He explains that when one puts the controversy between the deferred method and the nondeferral or flow through method in a new perspective he finds that the deferred method and the accelerated method has considerable merit as a crude way of accounting for assets with declining per-period benefit flows.

The article focuses on a report related to the role of economic and financial research in addressing the practical problems of capital management. The author believes there is a detrimental gap between innovative management techniques and their adoption by companies. He outlines three problems of capital management: measuring worth of investment proposals, devising standards for evaluating proposals, projecting the firm's need for capital funds. He claims that good estimates of investment worth are vital to efficient capital management.

The article proposes a system of measuring net capital investment (NCI), earnings associated with NCI, and rate-of-return on NCI. This study, then, presumes it worthwhile to develop a system of measuring (NCI, E, ROR) in which the measure of NCI reflects its current cash equivalent. One way to arrive at the current cash equivalent of NCI is to measure or estimate the current exit value of each of the entity's owned resources and senior claims, then apply the balance-sheet identity to the resulting numbers.

This paper derives decision rules for corporate capital budgeting when cash flows resulting from the acceptance of projects are risky. The decision rules are in terms of a project's discounted value and rate of return, the two familiar measures of investment profitability under certainty. The analysis of capital projects assumes throughout that stock values are determined in perfect capital markets and also ignores complications which arise due to taxation of corporations and individuals. The results are therefore of theoretical rather than direct practical relevance. [ABSTRACT FROM AUTHOR]

The accounting rate of return (ARR) has traditionally been used as a surrogate for the economic rate of return (IRR) in evaluating the effectiveness of managements' capital investment decisions. Over the years, some question has been raised as to the validity of using the ARR as an approximation of the IRR. Several papers have recently come to grips with this question with varying degrees of success. This paper is intended to expose the conceptual differences between these rates of return, with the goal of clearly pointing out just how useful the ARR can be to management. [ABSTRACT FROM AUTHOR]

The article comments on the work of M. H. Miller and F. Modigliani, who created a controversy with their ideas on capital costs. While the author concedes that this research was "internally consistent" he also believes that it was linked with traditional theory and aims to show the similarities between this research and that done by A. Barges. A hypothetical is presented in which a merchant in the U.S. considers whether or not to export and import goods from China. The businessperson is aware of the variables involved and makes his final decision on whether or not he believes that the ship will return with its cargo and on expected returns. An additional factor is how the expected return would be affected if the businessperson borrowed the money for the venture.

The article examines the use of the concept of the rate of return on capital in accounting. The use of the concept has a long history. The post-war growth of awareness of and literature on the subject is symptomatic of a changing attitude of accountants away from bookkeeping and towards an operational understanding. Contemporary accounting authors acknowledge the fact that similar methods have been used throughout the financial community for computing bond yields, insurance premiums and rates on leased facilities. However, the author of this article finds little reference in accounting literature to the debt that is owed to engineers and economists who wrote about this topic in the late nineteenth century and prior to the Second World War. Alfred Marshall, the eminent economist, discussed the concept in his principles. Possibly recent writers on capital budgeting have been too engrossed in the constant money value convention. The so-called cut off point is also explicitly mentioned by Marshall. The entrepreneur will push investment of capital until there seems to him no good reason for thinking that the gains resulting from any further investment in that particular direction would compensate him for his outlay.

This article discusses the estimation theory in financial accounting, considering the single-asset situation which is the norm of most modern accounting theory. The authors argue that estimation theory is a practical model for handling multi-asset estimation problems, and they discuss the estimating horizon and allocation schemes in a decision-theory framework. The author discuss the problem with the estimating theory--predicting the future cash flows and internal rate of return, and consider the estimation procedure by assuming certainty about the future.

The article focuses on the differences in research conducted by accountants and economists, how they utilize the concepts opportunity cost (OC) and outlay costs (OL), and an experiment attempting to determine whether opportunity costs are relevant inputs to accounting decisions. It is possible that decision makers would ignore OC when information about these costs is provided within accounting reports since balance sheets are usually prepared without any calculation of opportunity costs and rate of return on investment never includes calculation of opportunity costs. Even economists usually do not calculate opportunity costs when comparing rates of return of organizations. But the research reveals that people instinctively take opportunity costs into account unless the decision alternatives are laid out in formal accounting style.

The article focuses on the social rates of return on investment in the U.S. railroads during the 19th century. Producer surplus in railroads is equivalent to gross receipts minus all relevant costs. Those costs must include the opportunity cost of capital to society, or the capital invested in railroads multiplied by some measure of the social productivity of capital in other forms of investment. In theory social saving should include all costs incurred by society, not just expenses borne by the private entrepreneur who builds the railroad. A charge for the opportunity cost of capital should therefore be incorporated into each of the cost curves defined above. The appropriate charge would be the gross capital invested multiplied by the marginal social productivity of capital in available alternative. One effect of railroad building was to force a sharp reduction in the transport charges of other carriers. Estimates of average social rates of return are difficult to make, primarily because the externalities associated with a given investment project are difficult to measure.

In summary, this paper has illustrated the application of a potentially useful decision criterion to the selection of a security portfolio where borrowing and lending is permitted, I look forward to further refinements. [ABSTRACT FROM AUTHOR]

The corporation tax does not of itself constitute the whole burden of taxation on investment in the company sector of the company; on the payment of a dividend a company must now deduct and remit standard rate income tax to the tax collectors. Furthermore, gains realized on the selling of shares result in a capital gains tax assessment on the seller. These three taxes on private investment have a direct impact on the prospective rate of return which companies should seek on equity financed capital investment projects. The purpose of this paper is to outline the factors which determine the cut-off rate with which a company's net of corporation tax (relieved, as the case may be, by investment incentives) return on investment should be compared. From a computational standpoint this purpose may be alternatively described as the determination of the rate of discount for discounting cash-flows (of a company) which are stated net of corporation tax and investment incentives. From a computational standpoint it is convenient to calculate the net of corporation tax return to a company because, under the new system of taxation, the investment incentives (other than cash grants to which this point has no relevance) can be set against corporation tax only. Hence an equity cut-off rate needs to embody an allowance for income tax and capital gains tax. [ABSTRACT FROM AUTHOR]

The article discusses replacement investment, or replacement of existing capital equipment, and proposes an optimal replacement method. Replacement decisions involve analysis of the probable duration of the investment, the optimal timing of the investment and the rate of return on an investment. A difference in cash flows should be assessed for the cost of replacing equipment versus continuing with the old equipment. The residual value of the equipment must be calculated. An example of the calculations for replacing a die stamping machine is presented.

This article discusses the accounting practices that contributed to the imperfection of securities market. Accounting reports are sources of financial information on the present position and past performance of individual firms according to the author where investors can calculate the rate of return on total assets employed in the firm's operations and the rate of return on shareholder's equity. Evidence is presented to show that accounting reports do not necessarily represent the position and performance of firms and that audit reports are ambiguous indicators of the quality of accounting information.

The article presents information on investment criteria and the cost of capital. According to elementary economic theory, profit is maximized when marginal revenue equals marginal cost. By adapting this doctrine to the capital budgeting situation, we get the theory that a company's investment program should be expanded to the point where the return from the last dollar invested equals the cost of raising that dollar. This suggests that a rational decision to accept or reject a particular investment opportunity can be made consistently. Unless the rate of return exceeds the cost of raising funds in the capital market and offer should be rejected.

This article reviews the investment-financing decision process of property and liability companies. It indicates the problems of measuring cost of capital and the need for an improved decision criterion for evaluating investment alternatives. A model is developed that simulates the long-run financing process of property and liability insurance companies. One of the key decision variables determined by the model is the rate of return required on new investments in order to produce management's desired earnings per share growth objective. Thus, the model links the investment and financing processes of property and liability insurance companies and provides decision makers probabilistic-oriented information for analyzing investment alternatives. [ABSTRACT FROM AUTHOR]

The article presents commentary and criticism on the financial report "An Operational Approach to Risk-Screening," by Richard S. Bower and Donald R. Lessard, included within the issue, discussing the integration of capital management and theory. Challenges are offered regarding their selection of excess return to total risk as a single index risk rule. Assumptions made by Bower and Lessard regarding systematic and project risk are addressed. Final comments are also given explaining their portrayed phenomena of return rate distributions.

In this article the author reflects on the comments made by Richard W. McEnally and Lee A. Tavis on the article "Rates of Return in the Nonlife Insurance Industry." He examines the observations made by McEnally and Travis that supported the position that if accounting data are used, the profits of noninsurance companies will be overstated. He argues that there has been progress in the area of property-liability profits.

In this article authors examines the relationship between industrial concentration and corporate profit. They try to find out whether the critical level of concentration can be defined, and whether increased concentration above the critical level significantly increases profitability. Economic theory provides some guidelines in selecting a measure of profitability but it is unable to indicate, unambiguously, the best definition. Some economists have argued that the rate of return on some measure of invested capital is theoretically the most appropriate measure of allocative efficiency. Authors remark that if advertising is associated with concentration the relationship between the price-cost margin and concentration could be spurious. Another drawback of the price-cost margins is the fact that they are available for only selected years and therefore it is not possible to average these margins over a sufficiently long period of time to test adequately the long-run theoretical relationship.

In this article, the author comments on the article "Concentration, Barriers, and Rates of Return: A Note," by Stephen A. Rhoades, which was published in the November 1970 issue of "Journal of Industrial Economics." The author says, Stephen A. Rhoades claims to have found that barriers to entry have no significant influence on profitability independent of concentration. Rhoades goes so far as to state that the relationship between the rate of return and concentration in high barrier industries is not significantly different from rates of return in low barrier industries. The author shows that Rhoades' apparent finding is based entirely on an outright statistical mistake regarding the illegitimate pooling of observations from the high and substantial barrier classes. Rhoades fails to investigate whether it is or is not statistically justifiable to combine the high and substantial barrier classes. Thus, pooling of the high and substantial barrier classes is unacceptable. The chances that the observations in these two groups are drawn from a common population is less than 5 in 100.

The article discusses issues related to apparent bias of net revenue estimates for capital investment projects. The author considers a person whose job is to evaluate potential investment projects for a corporation. Some methods employed to estimate potential investment projects are considered, and several flaws in the evaluation techniques that result in the selection of investment projects that issue lower than expected returns are highlighted. A simplified example of a capital investment project selection formula is analyzed.

This article discusses the results of study on capital expenditure decisions in industry carried out from the Centre for Business Research at the University of Manchester. Of the firms studied, many did not calculate the yield on investments. The author proposes that a lack of competitive pressure undermined the need for profit maximization. Alternative reasons explored include a lack of efficiency of the firms and faulty appraisal methods. Given the number of factors involved and the potential errors of forecast in each case, many firms may refuse to guess the numerical implications of more qualitative factors.

This article examines and compares the ranking characteristics of Benefit-Cost Ratios and Net Present Value. The algebraic analysis of the author shows the circumstances under which these evaluation techniques give a contradictory ranking of investment projects and identifies the differing implicity reinvestment assumptions where the validity of these assumptions is examined. There is still dispute concerning which technique is preferable under uncertainty and which under capital rationing according to the author.

In the November 1970 issue of "Journal of Industrial Economics," the author published a note which related to an earlier article by researcher H. Michael Mann. The major conclusions reached by Mann were that barriers to entry exert an important influence on industry profits independent of the level of seller concentration and the concentration-profitability relationship is better described, using a dummy variable, as subject to a distinct break or discontinuity rather than by a simple linear function. The author's note found that neither of these conclusions was warranted. Mann claimed that the author's finding of no significant differences between profits in high and low barrier industries was due to an outright statistical mistake regarding the illegitimate pooling of observations from the high and substantial barrier. The author argues that a footnote of his note very clearly indicates that he was not only aware of the problem of pooling observations from the high and substantial barriers classes but he also combined categories substantial and moderate for testing purposes.

The article presents a model for capital budgeting constrained by capital rationing and preferences for intertemporal returns. After describing and noting the implications of two paradoxes (time-preference and return) than can arise in the capital budgeting process, the authors resort to the formalism of mathematical programming to develop a two-period model for maximizing a project's utility subject to constraints involving cash flow, lending and borrowing rates, loan amount, etc. They also show how other models are special instances of the one presented.

This paper has attempted to develop a rational and objective basis for making capital budgeting decisions under conditions of less than perfect knowledge about the future. Two assumptions were made in order to simplify the initial analysis: (1) a perfectly competitive securities market made up of small, risk-averse investors with non-diversified portfolios and (2) a perfect correlation between returns from the investment project and returns from the firm's mix of assets. Given these it was demonstrated that the internal rate of return on an investment project could be made risk-equivalent to the firm's equity capitalization rate by the proper amount of borrowing or lending. The procedure was based on a linear transformation between return and risk when leverage is introduced. These risk-equivalent rates were then incorporated into the standard present value capital budgeting framework. The possibility of substituting personal for corporate leverage in the process of neutralizing the risk effect of a given investment opportunity was considered next. Since the assumption of perfect correlation of investment project returns and equity returns is not realistic, a new measure of risk on the investment opportunity was derived to reflect the diversification effect of less than perfect correlation between returns. [ABSTRACT FROM AUTHOR]

The purpose of this article is to illustrate the impact of the simultaneous investment-financing decisions required by a small growth company when accepting relatively large investment projects. By such illustration, the capital budgeting rationale for using "rules of thumb" will be clarified, and correspondingly, the implicit assumptions for approximating a company's "cost of capital" will be exposed. To provide quantitative estimates of the various impacts of different capital budgeting strategies, a relatively simple simulation model was constructed. Once the implicit assumptions are exposed, the importance of a strategy combining the rules of thumb and cost of capital criteria is evident. It is believed that this combined strategy provides a practical bridge between the "art" and science of finance. [ABSTRACT FROM AUTHOR]

The article presents an interdependent approach to capital budgeting. A model is developed that defines the optimal capital budget as a function of dividends, short-term investments, long-term investments, debt financing, and equity financing, and tested using quarterly corporate data for firms in several industries during the period 1949 through 1969. The model performs well and yields several insights into the capital budgeting process. When the capital budget is out of equilibrium, dividends and long-term investment quickly approach their equilibrium values. Short-term investment takes up slack by compensating for lagging adjustments of other components.

The article develops a method of capital budgeting for decentralized firms. Decentralization can sometimes induce managers to pursue divisional goals at the expense of corporate ones, with adverse consequences for the budgeting process. The authors present a procedure based on mathematical programming and the decomposition principle that screens individual projects against overriding corporate requirements. Investment opportunities are defined at the firm level in a way the captures divisional externalities without requiring that divisions be conversant with projects beyond their own jurisdiction.

This article examines the three production decisions that all business enterprises must face and attempts to incorporate them into a novel decision model. These decisions include designing a production plan that assess how much to produce and the means of production, how to invest capital in order to maintain production and how to finance this investment. The author extends research that has examined portions of these decisions by incorporating them all into one model. The author's model is designed to maximize shareholder value for a single product firm.

Discounted Cash Flow seems to have grown up mostly in production-oriented circles. This article pleads for more thought on the pattern of cash flow where marketing is an important element in a company's business. 'Investment Appraisal,' as the term implies, is concerned with the acquisition of plant, buildings, motor vehicles etc., largely in a production connotation. But the specific problems involved in marketing get scant attention in DCF literature. [ABSTRACT FROM AUTHOR]

Simulation techniques have been recommended in the recent literature as vehicles for improving the analysis of the corporate capital budgeting decision. Such techniques are alleged to provide more helpful measures of both return and risk than do single-point discounted cash flow estimates of project worth. This contention is challenged here. The conclusion is reached that the information provided by simulation is, at best, no better than is generated by the traditional single-point present value approach and, in one very important respect, is markedly inferior. [ABSTRACT FROM AUTHOR]

This article comments on the research by Lewellen and Long on simulation versus single-value estimates in capital expenditure analysis. The research suggests, as an alternative, discounting single-point-expected-value cash flows at a potential for relevant risk recognition than simulation. The risk adjusted rate the authors propose to use in discounting has its theoretical basis in the capital asset pricing model, but estimated by analogy with a firm in a line of business similar to that of the project. Unfortunately the theory does not quite fit. This is due to the fact that projects considered in capital budgeting involve cash flows that occur in several periods, while capital assets pricing theory deals with changes in value in a single period.

The article focuses on the derivation of a decision rule which indicates whether an asset should be acquired and whether that acquisition should be by purchase or lease. Some characteristics of this decision rule are emphasized, including the valuation of an asset depending on its after-tax returns and the use of appropriate discount rates based on cash flows. Several existing proposals put forth by other researchers are considered and found to be inconsistent with the investment criteria of maximizing shareholder wealth.

In this paper we present an outline of LONGER, a financial planning model based on mixed integer linear programming. The model is based on recent advances in capital market theory, but at the same time it recognizes certain additional considerations that are manifestly important to the financial manager. Thus, we believe that the model has good potential for practical application, although in this paper we emphasize LONGER's relationship to finance theory. We will skim over a number of issues that are critical in a practical application; a later paper will discuss these issues and present LONGER at a practical level of detail. Still another paper has worked out implications for decentralized capital budgeting rules. [ABSTRACT FROM AUTHOR]

Everyone seems to agree that there are significant interactions between corporate financing and investment decisions. The most important argument to the contrary--embodied in Modigliani and Miller's (MM's) famous Proposition I--specifically assumes the absence of corporate income taxes; but their argument implies an interaction when such taxes are recognized. Interactions may also stem from transaction costs or other market imperfections. The purpose of this paper is to present a general approach for analysis of the interactions of corporate financing and investment decisions, and to derive the approach's implications for capital investment decisions. Perhaps the most interesting implication is that capital budgeting rules based on the weighted average cost of capital formulas proposed by MM and other authors are not generally correct. Although the rules are reasonably robust, a more general "Adjusted Present Value" rule should, in principle, be used to evaluate investment opportunities. [ABSTRACT FROM AUTHOR]

The article discusses capital management and capital theory, outlining the challenges in operationalizing risk-screening policies into existing business practices. The strong presence of academic research modeling formal risk measures in capital investment is asserted and suggestions regarding the implementation of such theories are provided. Examples of several firms are included, describing their capital budgeting process and ways in which risk measures and screening criteria could be applied.

While uncertainty regarding future returns is explicitly considered in current literature on project evaluation, insufficient attention has been given to the dynamic nature of the investment decision process. The set of feasible alternatives changes over time and is not known in advance, making flexibility to pursue newly emergent investment opportunities a highly valued property of decision alternatives. Yet this concept is generally considered only in a casual and intuitive manner, and no attempts have been made thus far to incorporate it formally into capital budgeting procedures. To explicitly take account of changes over time in the set of feasible investment projects, standard measures of investment worth--such as the widely used net present value criterion--require modification. Given such changes, the economic desirabilty of a proposition will depend not only on its probabilistic future cash flows, but also on the decision-maker's probabilistic beliefs about the future composition of the set of feasible opportunities. New investment opportunities need not be conflicting with existing projects; a budget constraint may simply preclude new investments. By deriving the expected present value of postponement based on the investor's expectations about future opportunities, optimal investment policies were first derived based on the simplifying assumption of no divesture. Subsequently, premature abandonment of existing projects in order to take advantage of new opportunities was allowed for. While explicit mathematical analysis may not be operationally feasible--largely because of difficulties in obtaining probability density distributions of future events--first estimates derived from a graphic analysis such as the one presented may provide a useful start. In any case, it is expected that an awareness of the limitations of present tools for project evaluation will aid in both promoting their correct use and the adequate interpretation of any results. [ABSTRACT FROM AUTHOR]

The article examines the impact of changes in tax rates on the cost of capital firms use to discount cash flows. Ordinarily increasing tax rates are thought to discourage investment. Proceeding on the assumption that the cost of capital declines as tax rates increase, however, the author illustrates conditions under which reductions in a project's cash flows due to higher taxes can be offset by a diminished cost of capital. Hence, higher tax rates can produce greater levels of investment. Implications for public policy are discussed.

This article structures the capital budgeting decision problem faced by firms in a manner that permits observation of the various economic activities that take place in the firm. The author notes that this design contributes to the idea that the firm operates as an integrated system where decisions related to inputs, production and outputs are made simultaneously. The author believes that this research will optimize the budgeting process and help solve problems related to determining the number of units to produce, the number of capital goods to purchase, the size of labor force and how and from where funds will be secured.

The article focuses on the distinct financial characteristics of new town development projects as opposed to traditional smaller-scale community or property development. A profile is given of the investment decision limitations and challenges facing the "new town experiment" of the U.S in the 1960s, citing data from four new towns constructed in Virginia, California, Texas, and Maryland. It is suggested that federal aid and insurance loans will be necessary for the project to survive amidst the problems of scale facing town development.

This article focuses on capital investment theory, with concentration on investment options that involve the industrial firm's use of plant and equipment, and the basic tasks related to that theory. A normative theory of capital investment must determine from among the firm's major investment alternatives plans that are consistent with its goals, and must demonstrate how these choices apply to the firm's investment alternatives. The firm must determine which is the most efficient of its replacement options, its utilization options, and its retirement options, and must estimate the annual revenues and annualized costs associated with each output.

The article offers evidence that a sophisticated capital budgeting method was in place in the year 1915. The article "Jigs and Fixtures in the Small Shop," by John H. Van Deventer, published in the May 1915 issue of "American Machinist," is cited as evidence. The author discusses Van Deventer's method of allocating limited capital resources among numerous uses. Van Deventer considered the value of funds needed to secure investments, focusing on the cost records necessary for firms to produce their own jigs and fixtures to allow for accurate estimates.

The article reports on the dividend policy and its influence on the value of the business enterprise. Whether or not capitalists and financiers consider dividends more important than retained earnings at the margin is discussed through examining net cash flows from operations. The effects of additions to and subtractions to net cash flows upon stock values are examined. Net cash flows from operations can be collected from the payment of interest on debt or its equivalent as well as capital investments and dividends.

The article reports on the cost of capital and optimal financing of corporate growth. Research conducted on this topic is contradictory as the decision rules proposed for the determining of an optimal capital budget in a business and its structure are inconsistent. This is not explained by differing objectives either because authors are stating their work to be the means for accomplishing the same end. The optimal financing of corporate growth is something that will cater to the preferences of common stockholders.

The article examines the U.S. corporate income tax with respect to three criteria--its capacity to raise revenue, its fairness, and the extent to which it distorts business decision-making and promotes inefficient use of resources. During 1956 for instance, the corporate tax is expected to be second only to the individual income tax in terms of monies raised. The author discusses several issues surrounding the equity of corporate tax levies (eg, the "double taxation" of dividends), and notes the diminishing impact high tax rates can have on investment.

The article examines the impact of changes enacted in the 1954 U.S. Internal Revenue Code that affect how corporations can record depreciation. After describing various complaints directed at the prior Code, the author discusses features of the 1954 measure, with particular emphasis on the declining-balance and sum-of-the-years-digits depreciation methods. In his view the more liberal treatment of depreciation sanctioned by the 1954 code will reduce firms' risk on investment, increase rates of return, and provide protection against inflation.