Probabilistic Approaches to Return on Investment and Residual Income: A Reply.

Abstract The article presents author's reply to comments by K.H. Chan, associate professor of accounting at York University,Toronto, Ontario; S.F. Lam, assistant professor of computer science and Roger Tang, assistant professor of accounting, both at McGill University, Montreal, Canada, on author's research paper on probabilistic approaches to return on investment and residual income. According to the author, the main thrust of his research paper was that the high-medium-low technique is more viable in the real world than the credit it gets. The use of probabilistic estimating procedures plus non-availability of reliable data, difficulties of statistical manipulations for accountants and others and the costliness of some alternative techniques lead to this conclusion. Comments not only ignores the basic thrust but concentrates soley on an illuatration. Nothing is more simplistic than the rate of investment ratio of net income and investment where both are assumed to be normal or approximately normal.