Serial Defaults, Serial Profits

2017 ◽  
Author(s):  
Mauricio Drelichman ◽  
Hans-Joachim Voth
Keyword(s):  
Opportunity Cost ◽  
Cost Of Capital ◽  
Rate Of Return ◽  
Short Term ◽  
Philip Ii ◽  
Alternative Investments

This chapter looks at the profitability of banking families. Lending to the king of Spain made good business sense; it was hugely profitable on average, despite periodic defaults and restructurings. Defaults and reschedulings reduced the rate of return, but profitability net of these losses was still high—and markedly higher than the return on alternative investments. The same conclusion emerges from analyzing the profitability of loans by the banking dynasty. Of the sixty families that lent to Philip, only five failed to earn their likely opportunity cost of capital—and these bankers provided only a negligible proportion of the short-term loans taken out by the king. As a consequence, few financiers ever stopped lending to Philip II.

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.

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.

Introducing Investment Options

2021 ◽  
pp. 131-135
Author(s):  
Camilla Toulmin
Keyword(s):  
Decision Making ◽  
Opportunity Cost ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Payback Period ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Risk And Uncertainty ◽  
Present Value ◽  
Over Time

This chapter offers a brief survey of how the investment literature deals with risk and uncertainty, and examines the reasons for variation in returns between farmers from the principal assets – wells, oxen plough-teams, breeding cattle. Simple decision-making models derive criteria for choosing between investment options according to the net present value, internal rate of return, and payback period associated with a given pattern of returns over time. Portfolio models presents the rationale for investment in a range of assets, the returns from which are poorly correlated. Farmers differ in terms of their access to factors of production, the scale of their activities, the opportunity cost of capital, and vulnerability to risk. Four idealised household types – A, B, C, D – are described in order to compare the flow of returns from the three principal investments – wells, oxen plough-teams, and breeding cattle.

scholarly journals Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications

2007 ◽  
Vol 6 (3) ◽  
Author(s):  
Jeffrey I. Bernstein ◽  
Theofanis P. Mamuneas
Keyword(s):  
Productivity Growth ◽  
Opportunity Cost ◽  
Cost Of Capital ◽  
Rate Of Return ◽  
Irreversible Investment ◽  
Capital Costs ◽  
Tfp Growth ◽  
Percentage Points ◽  
Investment Capital ◽  
Hurdle Rate

This paper develops a model incorporating costly disinvestment and estimates the associated commitment premium required to invest in telecommunications. Results indicate that the irreversibility premium raises the opportunity cost of capital by 70 percent. This implies an average annual hurdle rate of return of 14 percent over the period 1986-2002. Irreversibility creates a distinction between observed and adjusted TFP growth. Observed growth, which omits the premium, annually averaged 2.8 percent from 1986 to 2002. This rate exceeded the (premium) adjusted TFP growth by 0.7 percentage points, therefore the average annual observed productivity growth overestimated the corrected rate by 33 percent.

scholarly journals Discounted cash flow valuation of conventional and cage-free production investments

2021 ◽  
pp. 1-18
Author(s):  
Carlos J.O. Trejo-Pech ◽  
Jada M. Thompson
Keyword(s):  
Opportunity Cost ◽  
Egg Production ◽  
Cost Of Capital ◽  
Deterministic Model ◽  
The United States ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Discounted Cash Flow ◽  
Conventional Production ◽  
Discounted Cash Flow Valuation

This study compares profitability and risk of conventional and cage-free egg production in the United States. Evaluating cage-free production is particularly relevant given ongoing consumer driven changes and new cage-free legislation. Results show that while the Modified Internal Rate of Return (MIRR) for conventional production is above an estimated industry opportunity cost of capital, cage-free production’s MIRR does not fully satisfy investors’ expectations. The MIRR of cage-free investment, between 5.6% (deterministic model) and 8.0% (stochastic) per 15-month flock, is below the 9.4% opportunity cost of capital. In addition, the simulations show that there is a 90% probability of conventional production’s MIRR falling between 18.5 and 20.3% per 15-month flock, and cage-free egg production’s MIRR ranging from 6.8 to 9.4%. In order for cage-free to be as equally profitable as conventional production, cage-free egg prices at the farmer gate should be 74% over conventional egg prices. Such high cage-free egg prices are highly unlikely to occur given recent cage-free price premia and consumer willingness to pay estimates from recent research. This study provides a framework egg producers can use to evaluate the potential effects of changes in their portfolio of products (i.e. conventional and cage-free mix) as they accommodate production schedules in this evolving industry.

Pengaruh Investasi Asset Jangka Pendek Dan Aktiva Terhadap Laba Usaha Pada Pt. Taspen (Persero)

2018 ◽  
Vol 1 (1) ◽  
pp. 21
Author(s):  
Ilyas Lamuda
Keyword(s):  
Return On Investment ◽  
Quantitative Methods ◽  
Linear Regression Analysis ◽  
Multiple Linear Regression Analysis ◽  
Rate Of Return ◽  
Short Term ◽  
Descriptive Data ◽  
Short Term Investment ◽  
Accounting Rate ◽  
Positive Effect

This study was to determine the effect of Short-Term Investments and Assets Assets in generating profits in the company PT. Taspen. The method of analysis used qualitative methods That is explained and analyzed by descriptive data. Quantitative methods to study whether the Short-term investment is profitable or not, can be determined either by the method Accounting Rate Of Return (ARR) That method that measures the level of profit from investments used to gain tersebut.dan the return on investment assets at PT. Taspen. To test the hypothesis then performed calculations using multiple linear regression analysis. Furthermore pengelohan data and hypothesis testing will be assisted by a computer program Softwere SPSS (Statistical Service and Solution product).Research shows that variable Short Term Asset Investments concluded that simultaneous effect relationship is negative and insignificant. But in partial, it provides a significant and positive effect on earnings. Assets Investments variable and not significant positive effect on earnings, but in partial, it provides a significant and positive effect on earnings.

The Sustainable Debts of Philip II

2017 ◽  
Author(s):  
Mauricio Drelichman ◽  
Hans-Joachim Voth
Keyword(s):  
Sixteenth Century ◽  
Strong Evidence ◽  
Military Expenditure ◽  
Debt Service ◽  
Fiscal Sustainability ◽  
Short Term ◽  
Systematic Analysis ◽  
Philip Ii ◽  
Long Run

This chapter addresses the sustainability of debt. A systematic analysis based on the International Monetary Fund's (IMF) methodology to evaluate fiscal sustainability shows that Castile was able to service its debts in the long run. While liquidity was scarce during periods of intense warfare, years of relative peace brought large surpluses. The data collected from Castile's annual fiscal accounts produced new yearly series of revenue, military expenditure, short-term debt issues, and short-term debt service. The resulting database spans a full 31-year period—enough to employ modern quantitative techniques. This analysis provides strong evidence that Castile's fiscal position in the second half of the sixteenth century was on a solid footing. The chapter then assesses whether the events that led to major downturns in Castile's financial fortunes could have been anticipated.

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
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