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: “ENGINEERING ECONOMICS” by James L. Riggs,McGraw-Hill Book Company: New York, 1977, 609 pages, $19.50 list.

The relevance of corporate investment decisions lies in their impact on shareholder wealth. It not only depends on the investment project but also on the corporate dynamics that turns it into the sequence of shareholders’ capital contributions, dividends, and gross terminal value that constitutes the shareholders’ investment project (SIP). We develop a model to calculate the SIP cash flows and the values of its interim capitals following the average internal rate of return (AIRR) paradigm. The shareholders’ final value depends on two reinvestment rates that, respectively, capture the returns obtained by the retained cash flows and the dividends reinvested by shareholders. On this basis, we approach the analysis of value creation combining both reinvestment rates in the shareholders’ net present value (SNPV). This model enables us to obtain the AIRR of the SIP and a variant of it, the equity growth rate that embeds the impact of internal and external reinvestment on the shareholders’ final value.