scholarly journals OPEX-risk as a source of CAPEX-bias in monopoly regulation

2020 ◽  
pp. 178359172098318
Author(s):  
Gert Brunekreeft ◽  
Margarethe Rammerstorfer
Keyword(s):  
Cost Of Capital ◽  
Formal Model ◽  
Rate Of Return ◽  
True Cost ◽  
Monopoly Regulation ◽  
Return On Capital ◽  
Regulated Firm

This paper shows with a formal model that under monopoly regulation, OPEX-risk can be a source for a CAPEX-bias. If OPEX and CAPEX are substitutes, the regulated firm can reduce the risk of the firm and thereby reduce the true cost of capital by rebalancing OPEX and CAPEX. If the regulated rate-of-return on capital is not influenced by the firm’s actions, this creates a margin between the regulated rate-of-return and the true cost of capital; this causes a CAPEX-bias. We examine the so-called fixed-OPEX-CAPEX-share (FOCS), which is a variation of TOTEX-regulation, as a promising remedy to address the CAPEX-bias. We argue that FOCS is effective to address the CAPEX-bias, while it can easily be implemented.

Cost of Capital—Rate of Return

1968 ◽  
Vol 24 (4) ◽  
pp. 113-116
Author(s):  
William C. Keefe
Keyword(s):  
Cost Of Capital ◽  
Rate Of Return

scholarly journals The most appropriate discount rate

2013 ◽  
Vol 4 (03) ◽  
pp. 391-400 ◽  
Author(s):  
David F. Burgess ◽  
Richard O. Zerbe
Keyword(s):  
Private Sector ◽  
Discount Rate ◽  
Opportunity Cost ◽  
Time Preference ◽  
Cost Of Capital ◽  
Rate Of Return ◽  
Social Time ◽  
The Social ◽  
Benefits And Costs

The social opportunity cost of capital discount rate is the appropriate discount rate to use when evaluating government projects. It satisfies the fundamental rule that no project should be accepted that has a rate of return less than alternative available projects, and it ensures that worthy projects satisfy the potential Pareto test. The social time preference approach advocated by Moore et al. fails to satisfy either of these criteria even in the unlikely case that the private sector behaves myopically with respect to a project’s future benefits and costs.

scholarly journals PROSPEK PEMBESARAN IKAN BAWAL (Colossoma macropomum) DI DESA SUKOSARI KECAMATAN BELITANG KABUPATEN OKU TIMUR

2016 ◽  
Vol 2 (02) ◽  
pp. 24-31
Author(s):  
Yudi Zuriah
Keyword(s):  
Production Process ◽  
Rate Of Return ◽  
Colossoma Macropomum ◽  
Time Production ◽  
Fish Breeding ◽  
Return On Capital ◽  
The Cost ◽  
Production Period ◽  
Research Criteria

The purpose of this study is to: (1) To find out how much the cost of production and acceptance of the enlargement of pomfret (Colossoma macropomum) in one production process, (2) To find out how the value of the feasibility of enlargement of bawal fish (Colossoma macropomum) in one time production process. This research was conducted in Sukosari Village, Belitang District, OKU Timur Regency. Determination of research location is done purposively or purposely, with the consideration that in Sukosari Village is one of the villages that develop bawal fish enlargement farming and the area has enough population in the research criteria. The study was conducted in February 2015 until it was completed. This study found that the average cost of revenues and revenues of pomfret fish breeding in the production period of 4 months, obtained revenue in pomfret breeding business amounted to Rp 37.322.467 / process, while the income from the business of raising fish pomfret Rp 11.352.433 / process. The analysis of R / C ratio obtained from the enlargement of pomfret fish in 4 months is 1.4, which means that every one rupiah sacrificed will be obtained by the receipt of 1.4 so the enlargement of pomfret is said to be profitable. ROI analysis represents the rate of return on capital where ROI on the business of fish bawal enlargement is 42%.

VALUASI BISNIS BARU DAN OPTIMAL CAPITAL PERUSAHAAN JASA INDUSTRI (MAKLON) BAGI UMKM KERIPIK KEMASAN. (STUDI KASUS: PT KRISPINDO)

2020 ◽  
Vol 12 (2) ◽  
pp. 254-269
Author(s):  
Helena Dewi
Keyword(s):  
Cash Flow ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Free Cash Flow ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Going Concern ◽  
Internal Rate ◽  
New Business ◽  
Equity Ratio

The increase of MSMEs in the food and beverage industry recently experiencing significant growth, especially during the Covid-19 pandemic. According to statistical data released by the Badan Pusat Statistik (BPS) in November 2020, the food industry dominated Micro and Small businesses in 2019 for 36.23%. The increasing number of MSME businesses in this sector becomes an opportunity for the processing services industry (contract manufacturer) to help MSMEs with all limitations. This study conducted a case study on PT. Krispindo as a company engaged in processing services (contract manufacturer) in the snack sector. This research aims to assess (valuation) new business proposed by PT. Krispindo in terms of optimal use of debt and equity for the company and also investment returns that can be given to investors. In addition, this research also aims to assist the company in making decisions for the following period project, decision to continue or discontinue the business. This study used optimal Cost of Capital (WACC) and Debt-to-Equity Ratio (DER) in setting optimal business capital. To measure investment return expectations for investors, the study used the company's Net Present Value (NPV), Free Cash Flow to Firm (FCFF) and Internal Rate of Return (IRR) approaches. To find out whether or not the business is further, this study uses Terminal Value Asset (TVA) and On Going Concern Value from the business obtained when the project ending. The results prove using debt in capital has more benefit for the company and the business can continue after the projection period ends.   Keywords: New Business Valuation (NPV), Debt-to-equity ratio (DER), Average Cost of Capital (WACC), Free Cash Flow to Firm (FCFF), Internal Rate of Return (IRR), Terminal Value Asset (TVA) and On Going Concern Value

The Weitzman Argument

2012 ◽  
Author(s):  
Christian Gollier
Keyword(s):  
Discount Rate ◽  
Opportunity Cost ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Cash Flows ◽  
Simple Rule ◽  
Rate Of Return ◽  
Net Benefit ◽  
Investment Projects ◽  
Net Benefits

This chapter examines a model in which the exogeneous rate of return of capital is constant but random. Safe investment projects must be evaluated and implemented before this uncertainty can be fully revealed, i.e., before knowing the opportunity cost of capital. A simple rule of thumb in this context would be to compute the net present value (NPV) for each possible discount rate, and to implement the project if the expected NPV is positive. If the evaluator uses this approach, this is as if one would discount cash flows at a rate that is decreasing with maturity. This approach is implicitly based on the assumptions that the stakeholders are risk-neutral and transfer the net benefits of the project to an increase in immediate consumption. Opposite results prevail if one assumes that the net benefit is consumed at the maturity of the project.

Airports Economic Regulatory Authority of India : Fair Rate of Return for Airports

2017 ◽  
pp. 1-30
Author(s):  
Sidharth Sinha
Keyword(s):  
Regulatory Authority ◽  
Rate Of Return ◽  
High Estimate ◽  
Return On Capital ◽  
Consultation Paper

An estimate of the fair rate of return on capital is a critical input into tariff regulation. A too high estimate will lead to high tariffs for consumers; a too low estimate will not provide adequate incentives for investment. The Airport Economic Regulatory Authority of India has issued a consultation paper for finalizing the norms and procedure for estimating the fair rate of return. It now needs to reconcile the differing view and approaches of different stakeholders.

The Rate-of-Return Regulated Firm: Cost and Production Duality

1983 ◽  
Vol 14 (2) ◽  
pp. 405 ◽  
Author(s):  
Rolf Fare ◽  
James Logan
Keyword(s):  
Rate Of Return ◽  
Regulated Firm

scholarly journals Is Protecting Sunk Investments by Consumers a Key Rationale for Natural Monopoly Regulation?

2009 ◽  
Vol 8 (2) ◽  
Author(s):  
Darryl Biggar
Keyword(s):  
Economic Theory ◽  
Incremental Cost ◽  
Marginal Cost ◽  
Alternative Hypothesis ◽  
Natural Monopoly ◽  
Deadweight Loss ◽  
Monopoly Regulation ◽  
Ramsey Pricing ◽  
Regulated Firm

Why regulate natural monopolies? Conventional economic theory points to the price-marginal cost margin and the ensuing deadweight loss. But this hypothesis does a poor job of explaining the way that regulators behave in practice. This paper proposes an alternative hypothesis: that natural monopoly regulation exists to protect the sunk investments made by consumers of the regulated firm. This hypothesis explains many of the practices of regulators which make little or no sense under conventional economic theory, such as the desire to pursue stable prices, the aversion to Ramsey pricing, and the role of incremental cost as a pricing floor.

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