Are Economic Profit and the Internal Rate ofReturn Merely Accounting Measures?

Abstract

This paper explores the proposition that economic profit and the internal rate of return are merely accounting concepts.  They share a number of common aspects.  These include an allocation of capital that is unrelated to market forces and a treatment in the literature that focuses on the mathematics rather than the economics.  We show that the two measures have limited, if any, economic content.  Therefore we conclude that they are devoid of compelling theoretical interest in the domain of wealth maximization.