Abstract

HERRERA ECHEVERRI, HERNÁN. Using the total rate of return of a business as an alternative to optimize investments on business units under conditions of uncertainty. estud.gerenc. [online]. 2007, vol.23, n.103, pp.97-126. ISSN 0123-5923.

Using the total rate of return of a business as an alternative to optimize investments on business units under conditions of uncertainty. In this article we analyze the significance of the TBR (Total Business return) as a measure of corporate strategy business units rate return. We mention the weakness of the TBR and the cases when is possible accept TBR as a value creating measure. We explain the equivalence between TBR and WACC (weight average capital cost) when is calculating trough discounting forecast cash flows and the equivalence between the CAV (additional creation value) and the subtraction between the real economic income less expected economic income. Also, we show the equality between the CAV and the variation of operations value (real operations value less expected operation value) plus the variation of current cash flow (real current cash flow less expected current cash flow). Later, we do an application to show the use of TBR and the modern portfolio theory for return-risk relation control when the CEO must manage many strategy business units in a corporation.

Keywords : TBR (Total Bussines return); risk; return; NPV (net present value); MVA(market value added); Value creation; Strategic Business units; efficient frontier; Risk and diversification.

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