Presents a letter to the editor about the Value of R[sup2] in Regression Analysis.

In a recent comment on Haim Falk and James A. Heintz's paper, Edward Blocher and Kung H. Chen re-emphasized the need for validation of the Falk and Heintz (F&H) proposed model and the application of Guttman's scalogram technique for risk analysis of equity securities. The purpose of this paper is to assess empirically the validity of F&H's model. Thus, 459 corporations were graded according to F&H's composite risk measure. This grading was then compared with three market-based risk measures. The market-based risk measures were derived by utilizing Sharpe's capital asset pricing model. The Standard and Poor 400 industrial index served as the basis for calculating the return on all capital assets in the market. In light of the additional effort and resources needed to adjust a traditional market price index for dividends, some researchers have ignored the dividend figures in measuring the market risk. While F&H's model gained substantial support on the company dimension, the usefulness of the industry factor has been found effective only if weak monotonic relationships are acceptable.

The article focuses on the research paper entitled "The Conceptual Foundations of Absorption Costing," appearing in the April 1972 issue of the journal The Accounting Review. The paper suggests that, fixed factors are fixed as to the available quantum of services but are divisible as to the use of these services. In other words, even though the fixed factors are indivisible as to acquisition, the flow of services they will render are divisible over their useful life. On the other hand, traditional economic theory treats fixed factors as being fixed as to time and not divisible as to use, thereby generating the familiar nonlinear total product and variable cost curves derived from the two factor production function. It is also stated that, if the fixed asset is used at an accelerated rate, then its value would be increased. Therefore, if a fixed factor is divisible as to use, its value is both a function of use and time. That portion which is a function of time should be treated as a period cost.

[The cash recovery rate (CRR) has recently received attention as a basis for obtaining a measure of the economic rate of profitability of a firm as measured by its internal rate of return (IRR). This paper extends prior work by developing a model of the CRR-IRR relation which incorporates a commonly noted concave cash flow pattern for the firm's projects. The model forms the basis for converting an estimate of the firm's CRR into an estimate of its IRR. Empirical evidence is provided that the IRR estimates that are based upon the concave cash flow pattern are strongly associated with the IRR estimates based on the simpler cash flow profiles assumed in earlier work.]

The cash recovery rate (CRR) has recently received attention as a basis for obtaining a measure of the economic rate of profitability of a firm as measured by its internal rate of return (IRR). This paper extends prior work by developing a model of the CRR-IRR relation which incorporates a commonly noted concave cash flow pattern for the firm's projects. The model forms the basis for converting an estimate of the firm's CRR into an estimate of its IRR. Empirical evidence is provided that the IRR estimates that are based upon the concave cash flow pattern are strongly associated with the IRR estimates based on the simpler cash flow profiles assumed in earlier work.

Reviews the book "Managerial Accounting: An Introduction to Concepts, Methods and Uses," by Sidney Davidson, James Schindler, Clyde Stickney and Roman Weil.