A review of: “APPLIED ECONOMIC ANALYSIS FOR TECHNOLOGISTS,ENGINEERS, AND MANAGERS ” BY MICHAEL S. BOWMAN Prentice-Hall,Inc., Upper Saddle River,New Jersey, 1999, xii + 561 pp., ISBN: 0-13-375932-6, List: $76.75.

In their recent paper Tang and Tang (2003 Tang, S. L. and Tang, H. J. 2003. The variable financial indicator IRR and the constant economic indicator NPV.. The Engineering Economist, Vol. 48(No. 1): pp. 69–78. [Taylor &; Francis Online] , [Google Scholar], pp. 69–78) revive a longstanding controversy—net present value (NPV) versus internal rate of return (IRR)—by characterizing the NPV as an economic indicator and the IRR as a financial one. The paper implies that this distinction justifies ranking financial alternatives by ranking their IRRs. In the current article, it is argued that the direct IRR ranking does not necessarily provide the same evaluation environment—and therefore a fair comparison—for each alternative involved, and that the incremental ranking approach is needed to remedy this shortcoming. The article also points out that Tang and Tang's numerical examples of simple projects with one sign change in their cash flow patterns do not address the problem of multiple IRRs, which consequently renders Tang and Tang's ranking approach dysfunctional. It is demonstrated that the concept of a true rate of return, substituting for the non-performing IRR and applied in conjunction with the incremental approach, provides an adequate tool for ranking mutually exclusive projects or a project's technical or financial alternatives.     

Review of:“ MAINTAINABILITY AND MAINTENANCE MANAGEMNT” by Joseph D. Patton,Jr., Instrument Society of America,Research Triangle Park,N.C., 1980, xiii + 441 pages,list $35.00.

To affect the actual project selection process of a corporate research lab, the project selection process needs to be simple and transparent enough to ensure effective communication among project leaders, research implementers and technology strategists. In this way, the project selection process stimulates project creation. If net present value (NPV) is our project criterion, this requires simplified NPV formulas. In this paper, we develop such formulas in the context of a major application.     

Jiangsu Jinsheng Industry Co.,Ltd.

Jiangsu Jinsheng Industry Co., Ltd, a joint venture company cooperated by Saurer AG, Swiss and Jinsheng, is one of the Top- 100 private technical enterprises of Jiangsu province, with 1,200 employees, RMB 500 million Yuan of assets and several subsidiar- ies including Saurer (Jintan) Textile Machinery Co., Ltd., Jintan Texparts Component Co., Ltd., Jiangsu Jiangsu Jinsheng Automo- bile Air Conditioner Pipe Parts Co., Ltd., Jinsheng Huamao Tech- nical Development Co., Ltd., Jian…     

A review of: “ENGINEERING ECONOMY WITH COMPUTER APPLICATIONS”, by Dr. Arup K. Mnllik,Engineering Technology,Inc., Mahomet,Illinois, 1979, 289 pages,list 517.95.

This paper applies option pricing analysis to the problem of valuing the abandonment option of an investment proposal. The assumption is made that the abandonment option is exercisable at only one point in time in the future and that the project's vatue-in-use and its abandonment value are lognormally distributed. The model is employed to measure how the uniqueness of the project asset, as measured by the correlation between these two lognormal random variables, affects the value of the abandonment option. It is shown that the more unique the asset, or the higher the correlation, the lower is the value of the abandonment option. The model is also employed to examine the impact of increased uncertainty in these two random variables on the value of the abandonment option. The relationships are shown to be nonmonotonic. However, beyond critical thresholds, increased uncertainty in either one of the two variables enhances the value of the abandonment option.     

A Review of: “ECONOMIC ANALYSIS AND INVESTMENT DECISIONS” by Chi U. Ikoku,John Wiley and Sons,New York, 1985, xx + 277 pp., ISBN 0471-81455-5, List $34.95.

(Payback Plus 2.0 is an updated version of PAYBACK which had earlier been released by the Society of Manufacturing Engineers (SME). This new software package is published and distributed by MiCAPP Inc., 16956 230th Avenue, Big Rapids, Michigan 49307. It is available for the IBM-PC or compatible equipment; the advertised list price is £99 + £4 shipping and handling.)     

A review of: “COST ENGINEERING FOR EFFECTIVE PROJECT CONTROL” by Sol A. Ward,John Wiley & Sons,New York,NY, 1992, viii + 227 pp., ISBN 0-471-52851-X. List $54.95.

Our survey of the investor-owned electric utility companies and utility commissions indicates that the use of asset pricing models for estimating the cost of equity is limited in this industry. The respondents cite unfamiliarity with the arbitrage-pricing model as a main reason for not using it. Use of the capital asset pricing model is also less than one would expect. However, deregulation of the industry could create a need for more-precise quantification of risk. In the new environment, utility companies may find asset-pricing models more useful.     

A Review of“BUSINESS INVESTMENT POLICY”* A Critical Review GEORGE TERBORGH: Machinery and Allied Products Institute and Council for Technological Advancement, 1200 Eighteenth Street,N.W., Washington,D.C., 1958. 260 pp. $6 (A MAPI Study and Manual)

In my previous article on “Project Justification in a Multi-product Chemical Plant”, which appeared in the Fall 1959 issue of The Engineering Economist, I discussed the underlying causes for equipment acquisition and replacement in the chemical industry, and followed with a presentation of the payout-time technique for evaluating capital expenditure, as designed by a leading dye and pharmaceutical plant. Many other well-known techniques, such as the Annual Cost method, the Discounted Cash Flow, and the MAPI approach, are also available to management. However, none of the techniques mentioned relieves management of the basic responsibility for making the ultimate decisions regarding capital acquisition for expansion or replacement. The methods do present management with an analysis pointing up the relative merits of a given type of investment, and give some indication as to which alternative is the more desirable. Management, nevertheless, must assume responsibility for the final decision.     

Business Establishment with Good Faith,Innovation and Development——Paper on Maidilang Group Co., Ltd.

After ten years of deploitation and enterprising, ten years of efforts, and ten years of manoeuvring among various political groupings, Maidilang has started from a small family factory of over RMB30,000, finally grown into a group company with total assets     

A Review of: “MODELING THE SUPPLY CHAIN” BY JEREMY R SHAPIRO Duxbury Press,Pacific Grove,California, 2001, xv + 586 pp. ISBN 0-534-37363-1. List: $71.95.

In this paper, we measure economic profit in an inflationary environment. Inflation adjusted economic profit requires two principal alterations to Economic Value Added (EVA[rgrave]). First, because inflation increases the replacement cost of non-current assets above book value, one must make a downward adjustment to EVA[rgrave] to correctly measure economic profit. Second, we add a term to EVA[rgrave] to represent a manager's ability to increase product price as costs increase. This adjustment is positive because this ability adds value to a firm. When a firm's assets are largely current, the first adjustment is not necessary, and therefore, the second dominates. In this case, EVA[rgrave] underestimates economic profit. Economic profit remains positive when a firm's rate of return on invested capital, after tax and after depreciation, is less than the weighted average cost of capital by as much as the rate of inflation. Even when inflation is modest, unadjusted EVA[rgrave] has the potential to seriously misrepresent the operating performance of a firm.     

Table 1.FDI flows,by region and selected countries,1994-2005

(Billions of dollars and per cent) FDI inflows FDI outflows Region/country 1994-1999 2000 2001 2002 2003 2004 2005 1994-1999 2000 2001 2002 2003 2004 2005 (Annual average) (Annual average) Developed economies 373.9 1133.7 599.3 441.2 358.5 396.1 542.3 486.6 1,097.5 684.8 485.1 514.8 686.3 646.2 Europe 220.4 721.6 393.1 314.2 274.1 217.7 433.6 326.5 871.4 474.0 281.7 317.0 368.0 618.8 European Union 210.3 696.1 382.0 307.1 253.7 213.7 421.9 304.2 813.1 435.4 265.8 286.1 334.9 554.8 Japan 3.…