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Project cash flows and modified cash flows are presented in an illustrative graphic within Excel for the live or virtual classroom. Further, the graphic computes and displays the relevant modified internal rate of return (MIRR) and modified net present value (MNPV), with associated formulas. The presentation allows for a discussion of the reinvestment assumption attributed to the internal rate of return (IRR) and the net present value (NPV) calculations.

This study evaluates the potential of recycling carbon dioxide (CO2) in the associated gas for Carbon Capture Utilization and Storage (CCUS) in pre-salt carbonate reservoirs. We performed compositional subsurface modelling of a hypothetical field for multi-objective optimization, aiming at minimizing carbon emissions whilst maximizing the project’s economics. Although no absolute reduction in total CO2 emissions was met with economic improvement, all simulated CCUS scenarios yielded a lower carbon footprint oil, with 41% reduction in operational emissions and up to 20% increase in Net Present Value. The best CCUS case presented break-even oil price of 39.2 USD/STB and CO2 abatement cost of negative 92.4 USD/tCO2 abated, also showing significant reduction in number of squeeze treatments and cost of calcite scale management.

The cash flow estimation is important to evaluate projects in view of adding values to the owners’ equity of a firm. Cash flow estimation is a primary requirement for capital budgeting and using project evaluation techniques. Hence, this paper provides cash flow estimation methods from an accounting perspective to facilitate a reader understand the basics and bases of cash flows estimation with suitable exhibits from an accounting point of view. This paper provides explanations on basic principles of project cash flow estimation, meaning of incremental cash flow, trade-off between the equity and debt capitals used in projects, reason for excluding the cost of financing a project, tax concern, opportunity cost consideration, and the process and methods of estimating cash flows.

This study estimates the expected benefit from delayed Social Security claiming for higher-earning, healthier women who can expect to receive more future income payments than other Americans. The expected net present value of Social Security payments from delayed claiming for healthy women is $179,999, or more than twice the value of delayed claiming for a male of average health. The benefit from delayed claiming ranges from a low of $16,548 per year to $29,395 per year for healthy women. Even average health women gain at least $132,202 in Social Security wealth by waiting until age 70 to claim Social Security income benefits. Significant gains to women who delay claiming are robust to a 2% increase in real discount rates and to a 21% reduction in income that could occur if the Social Security trust fund depletes in 2026. The added benefits from reduced longevity and inflation risk suggest that the failure to delay claiming results in a significant loss in both retirement wealth and expected welfare.

Investments into wind generation may be hampered by revenues uncertainty caused by the natural variability of the resource, the impact of climate change on wind potential and electricity prices, and the regulatory risks. We quantify the uncertainty of the net present value of wind farms in France, Germany and Denmark and we evaluate the cost of support mechanisms needed to guarantee their profitability under present and future climate. We build a localised model for wind power output and a country-level model for electricity demand and prices taking into account hourly variation of wind, load and prices. Our study reveals that support mechanisms are needed at current market prices and current climate, as well as under future climate according to several scenarios for climate change and energy transition. The cost of support mechanisms for a 15-year period is evaluated to 57-172 billion euros in France, 232-397 in Germany, and 18-50 in Denmark.

This study aimed to quantify the energy potential of biogas produced from the anaerobic biodigestion of wastes from the olive oil extraction process through the simulation of scenarios with real data of olive oil production in the South and Southeast regions of Brazil, for the year 2018. We also used fictitious production data for comparative purposes. The simulations were made using the software "Biogas generation and energy use" effluents and rural waste version 1.0 of the Environmental Company of the State of Sao Paulo. Cost estimation and economic viability were performed using the internal rate of return (IRR), net present value (NPV), payback, and levelized cost of electricity (LCOE), considering the scenarios with and without the Certified Emission Reduction (CER) revenue. Concerning the regions, the Southern Region presented a viable project, with an IRR equal to 11%, NPV of US$ 92.909,28, and a payback of 7.9 years for the scenario with CER revenue. The Southeast region presented unviable projects for both states, Sao Paulo and Minas Gerais. Considering the national electric energy agency Resolutions, viable projects were obtained for Minas Gerais and the Rio Grande do Sul for the scenario with CER revenue.

This paper aims to justify the impact of environmental factors on net present value (NPV) and green net present value (GNPV). The study takes 201 samples of family farms, including three crops such as paddy, corn, and potato. This paper adopts regression models and mediating effects to determine the impact of non-green forces on the environment and its consequences on the financial performance of agriculture farms. Empirical findings indicate that fertilizer cost, pesticide cost, air pollution cost, and water pollution cost have a statistically significant impact on evaluating net present value and green net present value for the production of paddy and corn. However, none of the non-green forces have a statistically significant impact on potato production. Furthermore, pesticide cost has a mediating effect on the net present value of paddy and potato cultivation, while only fertilizer cost affects the net present value of corn production. The empirical findings inspire governmental authorities, policymakers, agriculturists, and other stakeholders to develop alternatives to enhance productivity and profits considering the environment.

Article Classification: Viewpoint Purpose: Cost recovery in commercial item contracts is difficult to calculate when contracts are terminated for convenience and contractors are seeking to recover the amount of cost to recover on the contract. For uniformity, present value methodologies and clauses are needed. Design: Based on a review of literature, FASB concept statement no. 7, and the FAR; a way to calculate present value of commercial item contracts is identified as well as present value clauses. Findings: Commercial items involving an uncertain degree of risk and dynamic costs use a fuzzy net cash flow methodology to calculate cash flow in order account for risk and changing investment and other costs. This cash flow forms basis to calculate net present value. It is recommended that clauses be inserted into commercial item contracts to allow for greater clarity as to how present value is calculated with certainty. Practical Implications: Recovery of cost of work performed prior to termination in contracts terminated for convenience is allowed, no method to calculate the present value in commercial item contracts exists. Present value clauses and methods are consistent with the intention of framers of the FAR. Originality/Value: There are no clauses concerning the calculation of net present value in commercial item contracts thus two possible alternatives are suggested. Due to lack of a current methodology to calculate the present value of commercial item contracts, FASB Concept Statement No. 7, present value, and fuzzy net cash flow are used to calculate present value of commercial items.

This work aims at the economic evaluation of a semi-underground pumped hydro storage power plant erected in an abandoned open pit mine. For the exploratory model-based analysis, we develop and apply both a simple deterministic and a stochastic net present value (NPV) approach, the latter of which uses Monte Carlo simulation to account for revenue uncertainty from electricity price fluctuations. The analytical framework developed is applied to two promising sites in the Rheinland region in Germany, Hambach and Inden, making reasonable parameter value assumptions and considering and ignoring the lengthy duration of lower reservoir flooding. The investor's value-at-risk is computed for alternative performance indicators (the NPV, net cash recovery, profit-to-investment ratio, and specific production costs) to compare the different outcomes in terms of the project's financial risk distribution. Calculations show that a semi-underground pumped hydro storage power plant in an abandoned open pit mine can be constructed at reasonably low investment costs and operated at low specific production costs. However, because the investment has to be made long before the pit lake is (naturally) flooded - a process that for realistic flow rates may take up to 20 years - the project is highly uneconomical and would require substantial subsidies, as compared to a situation where flooding happens immediately.

An incorporated body is the propeller of contemporary business world. It needs resources to run smoothly. With the capability of the company, it can either borrow capital from investor or attracts share investment or receives bank loan. Ultimately, it wants to maximize the profit and the value of the company. However, the issues like net present value, rate of return, inflation coverage, loan amortization capability, break even analysis, and life-cycle of financial planning are required to analyse well in the process of corporate finance. It is all done through the analysis of financial statement of the organization. It means sustainability in each corporate finance issues have been expected. In Nepal, Corporate finance issues are regulated under the Company Act, 2063 BS (2006 AD), Securities Act, 2063 BS (2007 AD), Banks and Financial Institutions Act, 2073 BS (2017 AD) etc. Office of the Company Registrar, Securities Board of Nepal and other regulators like Nepal Rastra Bank, Central Bank of Nepal, regulate the corporate finance status in Nepal to maintain good governance and to secure public confidences over it.

Decentralized power generation is an alternative and reliable resource of energy where the domestic electricity grid fails to provide rural communities with a reliable supply of electricity. We have more dependent on conventional sources like coal and petroleum fuels to generate energy, it is a determinate resource and also primes to GHG discharges and toxins in our air and water. Renewable energy sources like biomass, biogas, solar photovoltaic, hydro and wind are available abounded in nature.it also shields our world by considerably dipping the number of carbon emissions that we produce. These vitalities can be expended as separate or in a permutation of these resources known as a hybrid renewable energy system (HRES). We can also combine diesel generator with HRES as per the load demand and availability of the resources. The various case studies are reviewed related to the need for electricity in rural areas, benefits of decentralized energy generation, hybrid renewable energy system to fulfill household needs, to light up rural lives by off-grid electricity generation and employment opportunities to local youth, etc. which are optimized with the help of different software like HOMER, LINDO, HYPORA, VIPOR, etc. Performance of these hybrid systems can be compared on the basis of parameters like cost of energy (COE), net present cost (NPC), levelised cost of energy (LCOE), Levelised unit electricity cost (LUEC), Per unit electricity cost (PUEC) and Life cycle cost (LCC) with respect to grid-connected systems and extension of grid. The purpose of this work is to propose the best hybrid technology combination for energy production from a blend of RE sources to sate the energy essential of an off-grid village which is cost-effective, sustainable, techno-economically viable and environmentally sound.

We show that financial innovations, by letting firms benefit from safe cash flows in new ways, potentially cause a misallocation of resources at the firm level with low net present value (NPV) projects (with larger amounts of safe cash flows) getting preference over high NPV projects. Even negative NPV projects may be accepted. Such financial innovations benefit large firms (with large cash flows) more than small firms; hence, they widen the value-gap between leader and follower firms. These results indicate that productivity slowdown and the rise of superstar firms are not independent phenomena, rather they share the same underlying cause: Financial innovations letting firms benefit from safe cash flows. We show that misallocation towards low NPV projects gets worse as interest rates approach zero. The value-gap between large and small firms also increases as interest rates approach zero. These results cast doubt on the effectiveness of monetary policy in a low interest rate environment.

In this work we illustrate a simple logical framework serving the purpose of measuring value creation in a real-life solar photovoltaic project, funded with a lease contract, a loan contract and internal financing (i.e., withdrawal from liquid assets). We use the projected accounting data to compute the value created. We assess the project from both an investment perspective (operating assets and liquid assets) and a financing perspective (debt and equity). Furthermore, focusing on value creation for equity-holders, we calculate the expected contribution on shareholders wealth increase of operating and financing activity. In particular, we highlight the role of the distribution policy in financial modeling, by underlining the strict logical connections between estimated data and financial decisions.

Social impact bonds (SIBs) are an innovative financing mechanism for public goods. In a SIB, an investor provides capital to a service provider for a social intervention. The investor receives a return based on the outcome of the intervention relative to a predetermined benchmark. We describe the basic structure of a SIB and provide some descriptive statistics for these financial instruments. We then consider a formal model of SIBs and examine their ability to finance positive net present value projects that traditional debt finance cannot. We find that SIBs expand the set of implementable projects if governments are pessimistic (relative to the private sector) about the probability an intervention would succeed or if the government is particularly averse to paying costs associated with a project that does not generate offsetting benefits. As both these features are present in various public programs, we conclude that SIBs are a real innovation in public finance and should be considered for projects when traditional debt finance has been rejected. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Discounted-cash-flow valuations are upward biased even when estimates of market discount rates and cash flow growth rates are unbiased, because both compounding and discounting are convex functions. The upward bias in the estimated value of a long-lived cash flow stream can exceed 25% under plausible assumptions regarding magnitudes of estimation errors, which can equate to upward bias in estimated net present values that exceed 100%. This bias may help to explain the value premium puzzle, observed takeover premia, long run returns after IPOs, and high equity valuations during periods of low real interest rates. A method of correcting value estimates for the bias is proposed.

We provide theoretical foundations for positive lender profits in competitive credit markets with asymmetric information, where potential borrowers have scarce collateralizable assets. Strikingly, when some borrowers have negative net present value projects, an equilibrium always exists in which lenders make positive profits, despite their lack of ‘soft’ information and free entry of competitors. We then establish that greater access to collateral for borrowers reduces lender profits, and we relate our findings to the empirical evidence on micro-credit, payday lending, and, more broadly, retail and small business financing.

In infrastructure project, every investment needs to be justified so that feasibility studies are conducted. Feasibility studies play an important role for completion of project, so it is important to do every investment with feasibility studies. The paper is an attempt to present modern methodology for financial viability applied before execution. Now, firstly evaluating the data and process it into proper perspective, which gives financial results in various parameters such as net present value, internal rate of return, payback period, discounted payback period. Now the investor compares financial results with his specified criteria. One can find out whether the project is possible or to go for a better option for investment to get a good return which draws the viability in terms of benefits in near future. To put these aspects in a nut shell and the factual situation about how does the project work? It gives us the realistic approach.

This study evaluates and identifies CO2 enhanced oil recovery (EOR) operational strategies that are conducive to the co-optimization of geologic carbon storage (GCS) and incremental oil recovery. The subject of co-optimization has been a focus of carbon capture, utilization, and storage (CCUS) research studies during the last decade. Even though the goals of EOR (produce more oil/money with less purchased CO2) and GCS (store more expensive CO2) seem in conflict, if the CO2 flood is sweep efficient, the reservoir volumetric accounting for both EOR and GCS can be in balance. More specifically, when CO2 efficiently contacts the oil within the target reservoir, more oil is produced. At the same time, the pressure relief from the oil production increases CO2 storage capacity in the reservoir. In short, efficient oil production increases ultimate CO2 storage volume. This is particularly true in continuous gas injection projects. Results show that flood efficiency as a function of CO2 net utilization ratios is best for water alternating gas (WAG) strategies that are combined with water curtain injection, where oil is recovered faster producing earlier revenues and potentially the best net present value. However, standard WAG appears to have a better potential for co-optimization, providing the best compromise between oil production and net carbon storage.

Objectives: Compensable patients under the Transport Accident Commission, Workcover or Overseas Visitor Agreement are a source of hospital revenue to augment Activity Based Funding for effective and efficient delivery of healthcare. Departments under pressure to provide emergency care within the National Efficient Price rely on accurate reimbursement arrangements. This study aimed to perform an economic evaluation in the form of a cost-benefit analysis (CBA) to assess an initiative to increase billing accuracy. Method: A retrospective review of patients who were eligible for billing from the period of 1st April 2018 to 31st January 2019 was undertaken. Individual patient files were examined and reconciliated with the historical billing record and any discrepancies identified. Results: A total of 76,523 patients presented to the emergency department during the ten-month period of April 2018 to January 2019 inclusive. Of these, 2,737 patients were deemed compensable. A total of 740 undocumented billing items were identified with an estimated Medicare Benefits Schedule (MBS) value of $59,870.50 and an Australian Medical Association (AMA) value of $152,400.00. The Net Present Value (NPV) of this identified cash flow stream in perpetuity was $1,436,892 (MBS) and $3,657,600 (AMA). The positive NPV was maintained with sensitivity analysis. Conclusion: This was a positive study that demonstrated that, for this population of presentations, and for this particular system of billing identification, all scenarios examined led to a positive Net Present Value favoring the initiation of a system of billings recovery for compensable patients presenting to an Australian emergency department.

This paper analyzes nuclear power plant investments using Monte Carlo simulations of economic indicators such as net present value (NPV) and levelized cost of electricity (LCOE). In times of liberalized electricity markets, largescale decarbonization and climate change considerations, this topic is gaining momentum and requires fundamental analysis of cost drivers. We adopt the private investors’ perspective and ask: What are the investors’ economics of nuclear power, or - stated differently - would a private investor consider nuclear power as an investment option in the context of a competitive power market? By focusing on the perspective of an investor, we leave aside the public policy perspective, such as externalities, cost-benefit analysis, proliferation issues, etc. Instead, we apply a conventional economic perspective, such as proposed by Rothwell (2016) to calculate NPV and LCOE. We base our analysis on a stochastic Monte Carlo simulation to nuclear power plant investments of generation III/III+, i.e. available technologies with some experience and an extensive scrutiny of cost data. We define and estimate the main drivers of our model, i.e. overnight construction costs, wholesale electricity prices, and weighted average cost of capital, and discuss reasonable ranges and distributions of those parameters. We apply the model to recent and ongoing investment projects in the Western world, i.e. Europe and the United States; cases in non-market economies such as China and Russia, and other non-established technologies (Generation IV reactors and small modular reactors) are excluded from the analysis due to data issues. Model runs suggest that investing in nuclear power plants is not profitable, i.e. expected net present values are highly negative, mainly driven by high construction costs, including capital costs, and uncertain and low revenues. Even extending reactor lifetimes from currently 40 years to 60 years does not improve the results significantly. We conclude that the economics of nuclear power plants are not favorable to future investments, even though additional costs (decommissioning, long-term storage) and the social costs of accidents are not even considered.

Endowment funds and similar institutions aim to generate a benefit stream of unlimited duration on the basis of an initially donated capital. Towards this purpose, responsible trustees need to design a spending policy as well as an investment policy. A combined spending and investment policy is said to be efficient if the total net present value of benefits that are paid according to the policy is equal to the initial capital, and inefficient if the total net present value is less than that. For several strategies, analytical expressions are given for the total net present value of benefits under the Black-Scholes assumptions. One of the strategies considered is the combination of a fixed-mix investment policy with a benefit policy that pays inflation-indexed benefits as long as ruin does not occur. This strategy is shown to be inefficient in many cases; the effective loss of capital can range from 5% to 15% under realistic parameter values. The inefficiency can be removed by adapting the investment policy and raising the benefits, without increasing the probability of ruin.

Geothermal energy is one of potential energy that needs development to find renewable and lower cost energy. This study aims to obtain better project valuation in the geothermal power plant. Primary data of the geothermal power plant project obtained from geothermal private company and government. Expected Net Present Value (ENPV) method is a technique for valuing a project where several scenarios were generated. The scenarios generations helped the company get the full overview and conditions of the project. Project value calculated based on Net Present Value (NPV). The Monte Carlo Simulation calculate NPV based on discount rate, production volume, and operation and maintenance (O&M) cost. The risk of the project used three scenarios to obtain NPV and calculate Expected Net Present Value (ENPV). This study demonstrates that the ENPV method can reduce wide variance with multiple uncertainties that related to the project, so the company will have the results of valuation more robust and easier to interpret.

Investment decisions are among the most important managerial decisions. The purpose of this study is to examine whether non-diagnostic information in investment decisions elicits a dilution effect such that decision outcomes deviate from a Net Present Value (NPV) assessment. We also answer the question of whether the dilution effect is contingent upon the level of uncertainty in investment decisions. We provide theoretical explanations and experimental evidence on how non-diagnostic information affects decision makers and how that reflects in their investment behavior. Based on a lab experiment we find – in line with our expectation – that non-diagnostic information creates a dilution effect in investment decisions and influences investments. We show that the amount of non-diagnostic information is related to the magnitude of the dilution effect. Our results also indicate that decision makers reduce investment amounts when facing uncertainty and that information cue characteristics alter decision outcomes, even if the information provided is non-diagnostic.

The traditional decision-analytic approach to incorporate risk aversion into project evaluation is to calculate the expected utility of initial capital plus net present value. The choice of discount rate, and the convergence with the traditional finance approach, have always been a question. Our goal is to fill this gap. We adopt a standard continuous-time setup whereby the alternative to the project is the market for treasuries and stocks, and provide reasons to restrict preferences to generalized power or log utility. We find a convenient rate to discount portfolio capital (treasuries, stocks, and the project), which depends on market parameters and on the utility function. We also cater to practitioners, who discount the cash flows of the project, and ignore the market uncertainty. For them, we propose an adjusted discount rate that correctly compensate for the omission. The adjusted discount rate is lower than the beta-adjusted rate recommended in finance, and converges to the latter when the initial capital is large relative to the project, or the owner is risk neutral.

This paper uses a reduced form credit risk model to determine fair lending rates for micro-finance loans. A fair lending rate is defined to be that rate which makes the loan have a net present value of zero to the lender, after the inclusion of the lender’s costs of issuing and monitoring the loan.

In this paper, we lay out theoretical shortcomings of the IRR criteria that have largely dropped out of the finance literature. We discuss the problem of multiple IRRs and non-existent IRR under a new light. We also discuss the financial ambiguity that can arise when interpreting the IRR. Then, we describe two new rate of return metrics proposed by Magni (2010, 2013). These include the Book Average Internal Rate of Return (BAIRR) and the Economic Average Internal Rate of Return (EAIRR). These revised rate of return metrics rely on different assumptions about the pattern of changes to the value of an investment over its economic life. The result is a multi-period rate of return measure that is free of the limitations of the IRR and is consistent with net present value (NPV). The approach links NPV and the rate-of-return notion in an explicit and intuitive way, such that the NPV may be found as a product of the overall invested capital and the project’s expected rate of return (net of the cost of capital). Consequently, for those settings in which a rate of return measure is needed, the two metrics provide alternatives that can be used.

Central to global agreement on carbon emissions are strategic interactions amongst regions over carbon tax implementation and the benefits to be shared. These are re-examined in this paper, in which benefits from mitigation stem from a meta-analysis that links carbon concentration with region-specific measures of economic welfare. Implementation costs are then drawn from a highly disaggregated model of global economic performance. Multiplayer games are then constructed, the results from which are sensitive to embodied temperature scenarios and discount rates but robustly reveal that the US and China would be net gainers from unilateral implementation in net present value terms. The dominant strategy for all other countries is to free ride. Net gains to the three large economies are bolstered by universal adoption, which could be induced by affordable side payments. Yet the revealed downside is that net gains to all regions are negative for at least two decades, rendering commitment to abatement politically difficult.

We formulate one methodology to put a value or price on knowledge using well accepted techniques from finance. We provide justifications for these finance principles based on the limitations of the physical world we live in. We start with the intuition for our method to value knowledge and then formalize this idea with a series of axioms and models. To the best of our knowledge this is the first recorded attempt to put a numerical value on knowledge. The implications of this valuation exercise, which places a high premium on any piece of knowledge, are to ensure that participants in any knowledge system are better trained to notice the knowledge available from any source. Just because someone does not see a connection does not mean that there is no connection. We need to try harder and be more open to acknowledging the smallest piece of new knowledge that might have been brought to light by anyone from anywhere about anything.

When valuing firms through discounted cash flow, it is common to estimate the terminal value through the Gordon model. Some authors propose to adapt such model in the presence of inflation and for two particular cases: zero real growth and real growth through zero net present value projects. The discussion to the proposed adjustment (equal growth rate to inflation) is limited to the free cash flow to firm (FCFF) approach and is not unanimity. Our objective is to expand the discussion to the free cash flow to equity (FCFE) approach. Would the proposed adjustment also apply to the FCFE approach? We start corroborating the proposed adjustment for the FCFF approach, in our view. Then we reconcile the adapted model through a numerical example. After that we apply the same proposed adjustment to the FCFE approach. One would incur in error by following strictly the adjustments proposed for the FCFF approach: cash flow equals to income (changing net operating profit less adjusted taxes by earnings) and growth equals to inflation. We show that there is an additional necessary adjustment, either in the growth rate (dividing it by the weight of the equity in total capital) or in the earnings (proxy to the net cash flow). Both additional adjustments deliver the same outcome – which is also equal to the one the model adapted to the FCFF approach would deliver. We believe some practitioners might overlook such adjustments.

This paper examines the profit testing of life insurance companies that issue participating policies, type B and type A universal life policies, and variable annuities with guaranteed minimum maturity and death benefits, when investment returns are stochastic and modeled by normal or variance gamma distributions. We rely on the stochastic profit testing techniques introduced in Dickson, Hardy, and Waters (2013) to examine the influence of the models' parameters and of the models themselves on the profit testing indicators. We show that the variance gamma model results in more conservative predictions - in a smaller expected net present value and in larger risk indicators for the net present value - than the normal model for participating policies and universal life policies. The paper also shows that variable annuities with guaranteed minimum maturity benefits are little sensitive to the choice of model. For variable annuities with guaranteed minimum death benefits, we show that the expected net present value is higher but that the risk indicators built on the net present value remain higher in the variance gamma model.

This paper synthesises the state of knowledge on the economic effects of density. We consider 15 outcome categories and 209 estimates of density elasticities from 103 studies. More than 50% of these estimates have not been previously published and have been provided by authors on request or inferred from published results in auxiliary analyses. We contribute own estimates of density elasticities of 16 distinct outcome variables that belong to categories where the evidence base is thin, inconsistent or non-existent. Along with a critical discussion of the quality and the quantity of the evidence base we present a set of recommended elasticities. Applying them to a scenario that roughly corresponds to an average high-income city, we find that a 1% increase in density implies positive per capita net present values of wage and rent effects of $280 and $485. The decrease in real wage net of taxes of $342 is partially compensated for by an aggregate amenity effect of $221 and there is a positive external welfare effect of $52. Density has important positive amenity and resource implications, but also appears to create a scarcity rent, which harms renters and first-time buyers.

Low-carbon electricity technologies are often evaluated by their Levelized Cost of Energy (LCOE). However, LCOE cannot model the impact of one electricity source on the value of others. In previous work, System LCOE was proposed to estimate the costs of integrating an intermittent source into a grid consisting of multiple dispatchable electricity sources. Using a new DOSCOE (Dispatch-optimized system cost of electricity) model, we generalize System LCOE. DOSCOE can handle any mixture of dispatchable and non-dispatchable sources. It can analyze systems which contain storage, have legacy infrastructure, or have imposed policies. DOSCOE thus updates System LCOE to be applicable to more realistic electricity grid models. DOSCOE uses a linear program to find the capacity and generation mix which yields minimum LCOE. Running this linear program multiple times yields System LCOE curves. DOSCOE shows that to cost-effectively remove the last 10-20% of fossil fuels requires a moderate price on carbon and either low-cost nuclear power or carbon capture and sequestration. Alternatively, a hypothetical zero-carbon source needs to have a net present cost less than $2200/kW (with a 100% capacity factor) to displace existing fossil-fuel plants.

We discuss a possible solution to an unintended consequence of having grades, certificates, rankings and other diversions in the act of transferring knowledge; and zoom in specifically to the topic of having grades, on a curve. We conduct a thought experiment, taking a chapter (and some more?) from the financial markets, (where we trade pollution and what not?), to create a marketplace, where we can trade our grade, similar in structure to the interest rate swap. We connect this to broader problems that are creeping up, unintentionally, due to artificial labels we are attaching, to ourselves. The policy and philosophical implications of our arguments are to suggest that all trophies that we collect (including certificates, grades, medals etc.) should be viewed as personal equity or private equity (borrowing another widely used term in finance) and we should not use them to determine the outcomes in any selection criteria except have a cutoff point: either for jobs, higher studies, or, financial scholarships, other than for entertainment or spectator sports. We suggest alternate methods for grading and performance assessment and put forth tests for teaching and learning similar to the Turing Test for intelligence.

To maximise economic recovery from the UK Continental Shelf it is generally agreed that assets should be in the hands of those investors who are best willing and able to achieve this. Transactions in mature fields in the UKCS should therefore not be discouraged by the tax system. This study compares the post-tax remaining net present value of mature fields from the perspective of both potential sellers and buyers with emphasis on the comparative tax relief for decommissioning costs. The economic modelling was conducted on (1) a set of representative model fields, and (2) a set of representative real fields. It was found that when the asset transactions took place in late field life the effective decommissioning tax relief for the buyer was often less than that for the seller, resulting in the remaining NPV of the buyer being less than the remaining NPV of the seller, thus discouraging the asset transaction. Transfer of the tax history of the seller to the buyer as an element in the transaction can remove this discouraging feature.

We study project scheduling so as to maximize the expected net present value when task durations are exponentially distributed. Based on the structural properties of an optimal solution we show that, even if preemption is allowed, it is not necessary to do so. Next to its managerial importance, this result also allows for a new algorithm which improves on the current state of the art with several orders of magnitude, both in CPU time and in memory usage. ispartof: Operations Research Letters vol:46 issue:2 pages:240-244 status: published

This case is best taught in a first-year MBA finance course and with a series of cases based on cash flow analysis. Its primary objective is to portray the major differences in project analysis for nonprofit organizations compared to for-profit companies and to highlight the unique issues relevant in a health care environment. Students must decide, based on cash flow analysis and nonfinancial factors, whether or not to propose a long-term acute care hospital (LTAC) project to the board of directors of the U. Va. Health System. Students must use the assumptions outlined in the case to create a cash flow analysis and then compute a net present value (NPV) calculation and internal rate of return (IRR) for the project. After assessing the base-case results and sensitivity analysis of the assumptions driving those results, students must decide if the project should be taken to the board of directors.

We can overcome uncertainty with uncertainty. Using randomness in our choices and in what we control, and hence in the decision making process, could potentially offset the uncertainty inherent in the environment and yield better outcomes. The example we develop in greater detail is with regards to the creation and dissemination of knowledge. That there is uncertainty in this process, is perhaps, not to be debated. Our initial analysis shows that one of the better solutions, we can accomplish in this space, might be described by the prescription, “Don’t Simply Optimize, Also Randomize; best described by the term - Randoptimization”. We specifically show that the best decision we can make, with regards to the selection of articles by journals (and in a subsequent paper, with respect to school admissions), requires us to formulate a cutoff point, or, a region of optimal performance and randomly select from within that region of better results. The policy implication (for all fields) is to randomly select papers, based on publication limitations (journal space, reviewer load etc.) from an overall pool of submissions, that have a single shred of knowledge (or one unique idea) and have the editors and reviewers coach the authors to ensure a better final outcome.

The Citizens Broadband Radio Service (CBRS) spans 3550-3700 MHz. It represents approximately a 16% expansion of licensed spectrum below 4 Ghz. Wireless services based on available wireless spectrum have been a substantial source of technological innovation and economic growth over the past few decades. Based on reasonable assumptions, the estimated market value of CBRS ranges from $7.5 to $15.6 billion. The estimated annual consumer surplus of CBRS ranges from $8 billion to $26 billion. The estimated net present value of consumer surplus ranges from $80 billion to $260 billion.

A financial analyst for Procter & Gamble must report on the prospects and implications of a new teeth-whitening product. Beyond a realistic profit-and-loss forecast and baseline net present value, he must determine which pricing and marketing strategy is most likely to maximize value for shareholders. Excerpt UVA-F-1670 Rev. Dec. 7, 2016 The Procter & Gamble Company: Investment in Crest Whitestrips Advanced Seal It was May 2008, and Jackson Christopher, a financial analyst for the Procter & Gamble Company's (P&G) North America Oral Care (NAOC) group, hustled along a sunny downtown Cincinnati street on his way to work. NAOC's Crest teeth whitening group was considering the launch of an extension to its Whitestrips product, and the project had dominated most of his working hours. At least he avoided a long commute by living downtown. The week before, the group had met to consider the merits of the proposed product, known as Crest Advanced Seal. Although openly intrigued by the concept, Angela Roman, the group's general manager (GM), was reserving judgment until she had a clearer picture of the idea and risks. She had tasked Christopher with putting together the economic perspective on Advanced Seal, an effort that had required a lot of work amalgamating all the different considerations and thinking through the financial implications. In the process, he had had to manage a lot of different constituencies. In short, it had been an interesting week, and with the follow-up meeting the next day, Christopher knew he needed to present some conclusions. . . .

Consumers are often blamed for not making necessary investments in energy-efficient durables despite that these investments have positive net present value (NPV). Several papers have argued that when investments have option-like characteristics (e.g., irreversibility, uncertainty, flexible timing, and lumpiness), the aphorism “invest if the net present value of investing exceeds zero” isn’t the best advice. Yet, curiously, the Department of Energy (DOE) in the United States proposes new regulations mandating higher energy efficiency standards for consumer durables on the basis of positive NPV over an investment’s lifetime. In this paper, we provide a step-by-step deconstruction of DOE’s NPV methodology and show that DOE’s method purges volatility, volatility persistence, and nonstationarity that are otherwise present in energy prices. As a result, DOE’s projections of future energy prices are artificially smooth and statistically biased, casting serious doubt on the reliability of the magnitude of energy savings from energy-efficient durables. Our results, therefore, support the notion that consumers’ behavior isn’t irrational.

In this paper we apply the so-called partition function approach to study coalition formation in the North-east Atlantic mackerel fishery in the presence of externalities. Atlantic mackerel is mainly exploited by the European Union (EU), the United Kingdom (UK), Norway, the Faroe Islands and Iceland. Two games are considered. First, a four-player game where the UK is still a member of the EU. Second, a five-player game where the UK is no longer a member of the union. Each game is modelled in two stages. In the first stage, players form coalitions following a predefined set of rules. In the second stage, given the coalition structure that has been formed, each coalition choose the economic strategy that maximises its own net present value of the fishery given the behaviour of the other coalitions. The game is solved using backward induction to obtain the set of Nash equilibria coalition structures in pure strategies, if any. We find out that the current management regime is among the stable coalition structures in all eight scenarios of the four-player game, but in only one case of the five-player game. In addition, stability in the five-player game is sensitive to the growth function applied and the magnitude of the stock elasticity parameter.

We study the Net Present Value (NPV) of a project with multiple stages that are executed in sequence. A cash flow (positive or negative) may be incurred at the start of each stage, and a payoff is obtained at the end of the project. The duration of a stage is a random variable with a general distribution function. For such projects, we obtain exact, closed-form expressions for the moments of the NPV, and develop a highly accurate closed-form approximation of the NPV distribution itself. In addition, we show two limit theorems that also apply in a more general context (i.e., that also apply for projects where stages are not necessarily executed in sequence). Our work has direct applications in the fields of project selection, project portfolio management, and project valuation. In addition, our work is closely related to the work of CPM/PERT, however, whereas CPM/PERT deals with project completion time, we focus on project NPV.

How do we ensure that public infrastructure is properly and adequately maintained and replaced? How can we ensure that the allocation of infrastructure spending is not motivated by the political process? In this paper, I present an option value approach that offers an answer to both questions and I argue that this approach is superior to the current net present value approach (NPV). This yields several important results. First, I show that the NPV approach is not sufficient. Second, the option value approach allows for an explicit valuation for comparisons between projects. Third, the option approach provides an explicit formula for managing a transportation fund for infrastructure projects. Finally, the option value approach provides the means for a rule-of-law for managing infrastructure projects that ensures that both needed investment takes place and that funding is not allocated based on political value.

The net present value (NPV) of an investment project having many potential outcomes can be expressed as a weighted average of the NPVs calculated from the individual outcomes, the weights being the outcome probabilities. Danielson (2016) demonstrates that this formula does not apply to the internal rate of return (IRR) of a project having many potential outcomes, the weights in particular coming under scrutiny; the weights are redefined to depend on cash flow structures as well as outcome probabilities. This note elaborates on Danielson’s result, demonstrating another presentation in which the weights are the outcome probabilities alone.

Perhaps the single most important decision faced by management is the selection of investment projects that maximize the present value of shareholders’ wealth. This paper is a review of the literature on capital budgeting procedures. Analytic techniques such as Net present value (NPV), Internal rate of return (IRR), Payback, Discounted Payback, Time-adjusted discounting, Accounting Rate of Return, Profitability Index and Modified IRR are reviewed here. Additional supplementary techniques, when some complexities relating to risk and uncertainty are involved, are also discussed. Results of field surveys are reported. In sum, the results suggest increased prominence of the NPV as an evaluation technique consistent with its much emphasized academic merit. In particular, the Graham and Harvey (2001) survey reveals that the likelihood of using specific evaluation techniques is linked to three factors namely firm size, firm leverage and CEO characteristics. The study recommends the use of real options techniques as they facilitate the linkage of financial objectives with corporate strategy in the ever-increasingly complex business environment.

Valuation is the heart of finance and investment decision making. Shareholders, analysts and company officers all need to be able to measure the worth of a company if they are to make investment decisions or alternatively create value within the company. Although several methods exist to value companies, the discounted cash flow (DCF) model is (arguably) both the most theoretically sophisticated as well as the most widely used approach. Its theoretical elegance lies in the fact that it looks to future cash flows which are anticipated from the assets, and discounts these, using simple time value of money principles, to produce a net present value of the business enterprise. Its accuracy depends on the ability of analysts to correctly forecast future cash flows, and in particular, to estimate the growth rate of these in perpetuity. We reverse-engineer the DCF valuation equation to calculate the market’s implied terminal growth rate (ITGR). To do so, we use historical financial statements and market capitalisations of the top 160 Johannesburg Stock Exchange (JSE) listed companies between 1980 and 2015. By constructing four non-overlapping five year periods, we are able to calculate the ITGR by equating free cash flows to the market value of equity for each company. Because the results vary widely, we use medians to estimate an ITGR of between 10% pa and 16% pa. We triangulate our results using other approaches to the problem, and conclude that the values typically shown in textbooks and used by practitioners are too low. We also report that higher values of the ITGR should be employed for more established companies.

This paper examines the effect that endangered species regulation has on natural resource development. Specifically, we use data from competitive auctions to estimate the effect that land-use regulation protecting endangered caribou in the Canadian province of Alberta has on the price producers pay for the right to extract oil. We exploit a regression discontinuity design to evaluate how prices differ along regulation boundaries that constrain resource development. The auction format and the regulation discontinuity allow us to measure the total cost of the regulation. We find that producers pay 24% less on average for oil leases that are regulated and that the total net present value cost of the regulation exceeds $1.15 billion for leases sold between 2003 and 2012, all of which is borne by the government. In spite of these costs, the populations of endangered caribou remain in widespread decline.

This paper considers the application of multiple interest rate analysis to a model of the production of commodities by means of commodities. A polynomial, for the characteristic equation of the augmented input-output matrix, is used in defining the rate of profits in such a model. Only one root is found to be economically meaningful. No non-trivial application of multiple interest rate analysis is found in the analysis of the choice of technique. On the other hand, multiple interest rate analysis can be used in defining Net Present Value in an approximate model, in which techniques are represented as finite series of dated labor inputs. The product of the quantity of the first labor input and the composite interest rate approaches, in the limit, the difference between the labor commanded by and the labor embodied in final output in the full model.

The recent fall in oil prices has led to extensive capital rationing, and thereby given rise to a renewed focus on parameters for project selection which supplement net present value. While the financial crisis was creating capital constraints, the oil industry seemed to be paying great attention to the net present value index. The metric most often referred to at present, given the prevailing uncertainty over the direction of future oil prices, seems to be the breakeven price of a project. Management and professionals in the oil and gas sector, as well as industry analysts, appear to be very concerned about which criteria in addition to net present value other companies are applying in their decision-making. Our findings indicate that they can be more relaxed here, since the various supplementary criteria provide very similar rankings. We examine the different investment metrics of a portfolio of oil projects. The analysis of project metrics shows that the overall grouping of projects is the same with the three supplementary metrics. The concentration by the companies on robustness related to oil prices means that particular attention is paid to the breakeven price and cost optimisation. Projects which are optimised and sanctioned may have a very high return with the realisation of an expected price scenario. We introduce a new metric, referred to as the complete net present value index, which improves the traditional net present value index by including operating expenditure and by treating taxes in a consistent manner.