Pricing the Planet's Future

2012 ◽  
Author(s):  
Christian Gollier
Keyword(s):  
Discount Rate ◽  
Investment Project ◽  
Environmental Problems ◽  
Cash Flows ◽  
Infrastructure Investment ◽  
Dynamic Problems ◽  
Public Infrastructure ◽  
Policy Debates ◽  
Ideal Framework ◽  
Pension Benefits

Our path of economic development has generated a growing list of environmental problems including the disposal of nuclear waste, exhaustion of natural resources, loss of biodiversity, climate change, and polluted land, air, and water. All these environmental problems raise the crucial challenge of determining what we should and should not do for future generations. It is also central to other policy debates, including, for example, the appropriate level of public debt, investment in public infrastructure, investment in education, and the level of funding for pension benefits and for research and development. Today, the judge, the citizen, the politician, and the entrepreneur are concerned with the sustainability of our development. The objective of this book is to provide a simple framework to organize the debate on what we should do for the future. A key element of analysis by economists is the discount rate—the minimum rate of return required from an investment project to make it desirable to implement. The book outlines the basic theory of the discount rate and the various arguments that favor using a smaller discount rate for more distant cash flows. With principles that can be applied to many policy areas, the book offers an ideal framework for dynamic problems and decision making.

scholarly journals Methodology for calculating the criteria of economic efficiency of investments in nuclear icebreakers

2021 ◽  
Vol 7 (4) ◽  
pp. 333-339
Author(s):  
Artem V. Klauz ◽  
Igor E. Frolov ◽  
Vladimir V. Kharitonov ◽  
Aleksandra A. Shaeva
Keyword(s):  
Discount Rate ◽  
High Speed ◽  
Financial Burden ◽  
Investment Project ◽  
Mathematical Expression ◽  
Cash Flows ◽  
Payback Period ◽  
Operating Costs ◽  
Investment Efficiency ◽  
Capital Costs

An economic and analytical model for evaluating the criteria of efficiency (profitability) of investments in the projects of innovative nuclear icebreakers of the Northern Sea Route is suggested. The model is based on the new analytical representation of the methodology for forecasting the investment project efficiency that is widely used in international practice. The mathematical expression for the net discounted income provides convenient formulas for calculating several investment efficiency criteria for nuclear icebreakers: internal rate of return, minimum annual revenues from icebreaker convoys, discounted payback period, and the volume of delivered cargo. The paper gives estimates of the criteria for the efficiency of investments in “Leader” class icebreakers that depend on the discount rate of cash flows, capital, and operating costs. It is shown that at high capital costs, typical for construction of “Leader” class nuclear icebreakers, the minimum required revenue of an icebreaker, representing a financial burden for ships transporting cargo along the NSR, rapidly increases with the growth of discount rate and the reduction of investment payback period. This means that the profitability of such icebreakers is only possible at low discount rates of 2–3% per year, which is an extremely low-interest credit. Even with low interest and impressive technical characteristics of the icebreaker (high speed of navigation, large number of ships in the caravan and their maximum capacity) the payback period would exceed 25 years.

scholarly journals JUSTIFICATION FOR CHOOSING THE DISCOUNT RATE IN INVESTMENT ANALYSIS

2021 ◽  
pp. 21-28
Author(s):  
Светлана Викторовна Кузина ◽  
Павел Константинович Кузин
Keyword(s):  
Discount Rate ◽  
Economic Efficiency ◽  
Methodological Approach ◽  
Investment Project ◽  
Cash Flows ◽  
Present Value ◽  
Investment Projects ◽  
The Future ◽  
Value Of Cash ◽  
Future Value

Статья посвящена вопросам выбора ставки дисконта для приведения будущей стоимости денежных потоков к настоящей стоимости с помощью коэффициента дисконтирования. Целью исследования является анализ и обоснование выбора численного значения ставки дисконта в зависимости от источников финансирования инвестиционного проекта. Авторами приведены практические рекомендации по выбору метода оценки экономической эффективности привлечения инвестиций как для экономически обособленного инвестиционного проекта, так и для инвестиционного проекта, интегрированного в действующее предприятие. Научная новизна полученных результатов заключается в разработке методического подхода к выбору численного значения ставки дисконта для приведения будущей стоимости денежных потоков к настоящей стоимости с помощью коэффициента дисконтирования и к выбору приоритетного метода оценки экономической эффективности для экономически обособленных и интегрированных в действующее предприятие инвестиционных проектов. The article is devoted to the issues of choosing the discount rate for bringing the future value of cash flows to the present value using the discount coefficient. The purpose of the study is to analyze and justify the choice of the numerical value of the discount rate depending on the sources of financing of the investment project. The authors provide practical recommendations on the choice of a method for assessing the economic efficiency of attracting investment both for an economically isolated investment project and for an investment project integrated into an operating enterprise. The scientific novelty of the obtained results consists in the development of a methodological approach to the choice of the numerical value of the discount rate for bringing the future value of cash flows to the present value using the discount coefficient and the choice of a priority method for assessing economic efficiency for both economically isolated and integrated investment projects in an operating enterprise.

An Analysis of the Sources of Value Loss Following Financial Restatements

2021 ◽  
pp. 0148558X2198991
Author(s):  
Philip K. Hong ◽  
Jaywon Lee ◽  
Sang-Hyun Park ◽  
Sukesh Patro
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Stock Price ◽  
Cash Flows ◽  
Financial Fraud ◽  
Earnings Persistence ◽  
Flow Component ◽  
Financial Restatements ◽  
Value Loss

We decompose the total value loss around firms’ announcements of financial restatements into components arising from investors’ revisions in cash flows and discount rates. First, relative to population benchmarks, restatements represent circumstances in which the cash flow component becomes more important in explaining valuations. While we find significant contributions from both sources, with the cash flow component explaining more than 33% of the variation in stock returns surrounding restatement announcements, this component explains only 13% to 22% in comparable non-restating firms. When restatements are caused by underlying financial fraud, the discount rate impact becomes more important, explaining about 88% of return variation. On the contrary, the cash flow impact is relatively larger for firms with higher earnings persistence or restatements associated with errors. Our decomposition of the value loss helps explain returns in the post-announcement period. Firms with a higher relative discount rate impact experience a significant downward stock price drift after the initial announcement-related price decline. For firms with a higher relative cash flow impact, the evidence suggests the initial impact of the restatement announcement is more complete with no subsequent drift pattern. Our findings close gaps in the evidence on financial restatements and extend the literature on the drivers of stock price movements.

scholarly journals Government public infrastructure investment and economic performance in Spain (1980-2016)

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jose Perez-Montiel ◽  
Carles Manera
Keyword(s):  
Public Investment ◽  
Infrastructure Investment ◽  
Annual Data ◽  
Public Infrastructure ◽  
Cross Sectional ◽  
Content Type ◽  
Autonomous Communities ◽  
Vector Autoregressive ◽  
Acyclic Graphs ◽  
Multiplier Effects

Purpose The authors estimate the multiplier effect of government public infrastructure investment in Spain. This paper aims to use annual data of the 17 Spanish autonomous communities for the 1980–2016 period. Design/methodology/approach The authors use dynamic acyclic graphs and the heterogeneous panel structural vector autoregressive (P-SVAR) method of Pedroni (2013). This method is robust to cross-sectional heterogeneity and dependence, which are present in the data. Findings The findings suggest that an increase in the level of government public infrastructure investment generates a positive and persistent effect on the level of output. Five years after the fiscal expansion, the multiplier effects of government public infrastructure investment reach values above one. This confirms that government public infrastructure investment expansions have Keynesian effects. The authors also find that the multiplier effects differ between autonomous communities with above-average and below-average GDP per capita. Originality/value To the best of the authors’ knowledge, no research uses dynamic acyclic graphs and heterogeneous P-SVAR techniques to estimate fiscal multipliers of government public investment in Spain by using subnational data.

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.

Evaluating Foreign Direct Investment Projects

2018 ◽  
pp. 193-239
Keyword(s):  
Foreign Direct Investment ◽  
Host Country ◽  
Direct Investment ◽  
Home Country ◽  
Investment Project ◽  
Cash Flows ◽  
Parent Company ◽  
Investment Projects ◽  
Country Level ◽  
At Home

As explained in the foregoing chapter, once the relevant cash outflows and inflows associated with a foreign direct investment project are estimated so as to calculate the net cash flows, the desirability of the investment project should then be determined in terms of its economic profitability. Therefore, in this chapter the methods widely used in evaluating investment projects are discussed and their advantages as well as shortcomings are highlighted. Later in the chapter, evaluating foreign direct investment projects from the viewpoint of the parent company is elaborated in terms of profit and/or income transferred to the home country. The same investment evaluation techniques were applied to the net cash flows transferred to the home country of the parent company. The possible income and/or dividends to be remitted to the home country of a parent company are identified and discussed so as to reflect the viewpoints of investing parent companies when planning foreign direct investments. This two-level evaluation approach is generally followed in practice to make sure that direct investments are profitable at both host and home country levels, since an investment project that is not profitable at host country level would not be profitable at home country level either or a project that is profitable at host country level may not be profitable at home country level.

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