The problem of unevenly divided EVA (1/3)

• The accounting rate of return (e.g. ROI) is far for perfect in estimating the true rate of return of a company
• If we examine a single project then ROI is a poor estimator or the true rate of return, since at the beginning of the project when the capital base is big, the ROI is small and then at the end when the capital base is small then the ROI is big. Following figure illustrates this problem. It shows the ROI of a 8-year project producing constant operating income and a true total return of 11% (estimated with IRR).