A NOTE ON THE CHOICE OF COST PARAMETERS IN MACHINING COST MODELS

The calculation of minimum cost cutting speed for machine tools is classic in manufacturing     

A NOTE ON EVALUATING INVESTMENTS IN INVENTORY SYSTEMS: A NET PRESENT VALUE FRAMEWORK

Recently, Roumi and Schnabel wrote an addendum to attempt to fill gaps found in the article by Kim, Philippatos and Chung. They claimed that the objective functions developed by Kim, Philippatos and Chung are concave. However, we present a counter example which disproves their claim. In addition, we give clarifying explanations that the unique inflection point is a global maximum even though the objective functions are not concave. Consequently, we justify the optimally of solutions derived from the first order conditions in Kim, Phillippatos and Chung.     

A NEW PERSPECTIVE ON MULTIPLE INTERNAL RATES OF RETURN

The most commonly cited drawback to using the internal rate of return to evaluate deterministic cash flow streams is the possibility of multiple conflicting internal rates, or no internal rate at all. We claim, however, that contrary to current consensus, multiple or nonexistent internal rates are not contradictory, meaningless or invalid as rates of return. There is, moreover, no need to carefully examine a cash flow stream to rule out the possibility of multiple internal rates, or to throw out or ignore “unreasonable” rates. What we show is that when there are multiple (or even complex-valued) internal rates, each has a meaningful interpretation as a rate of return on its own underlying investment stream.It does not matter which rate is used to accept or reject the cash flow stream, as long as one identifies the underlying investment stream as a net investment or net borrowing. When we say it does not matter which rate is used, we mean that regardless of which rate is chosen, the cash-flow acceptance or rejection decision will be the same, and consistent with net present value.     

TECHNICAL NOTE A NOTE ON THE COST OF OWNERSHIP,CAPITAL RECOVERY AND DEPRECIATION

This paper develops an after-tax version of the classical capital recovery equation and demonstrates its value as a screening device and as an expository tool to convey conceptual understanding of the cost of ownership, capital recovery and depreciation.     

A NOTE ON THE OPTIMAL CYCLE LENGTH WITH A RANDOM PLANNING HORIZON

In 1993, Moon and Yun studied the economic order quantity model with a random planning horizon. They adopted the discounted cash flow to fully recognize the time value of money in determining the optimal cycle length. In this paper, we first derive bounds for the optimal cycle length. With those bounds, the algorithm of Moon and Yun can be simplified.     

DISCOUNT RATE VALUE AND CASH FLOW DEFINITION: A NEW RELATIONSHIP AND ITS IMPLICATIONS

This article uses different standpoints to approach the question of the consistency of project valuation methods. It shows that the NPV of a project can be obtained by discounting adjusted operating cash flows at a different rate from the risk-adjusted discount rate which should normally be used. Each of the conventional project valuation methods (standard WACC, equity residual, Arditti-Levy, APV) accordingly corresponds to a specific choice of the discount rate. Thus the convergence of these methods is obvious when the risk-adjusted discount rate integrates a debt ratio equal to the one of the project. Moreover, we obtain the Modigliani-Miller relationship generalized to the case of a project of any duration.     

DISCRETE VERSUS CONTINUOUS COMPOUNDING - A NOTE

R&;D projects generally involve multiple phases with or without overlapping. Moreover, the investment is usually made in a phased manner, with the commencement of the subsequent phase being dependent on the successful completion of the preceding phase. The aim of this article is to analyze the equilibrium strategies of two firms competing for a two-stage sequential R&;D investment, when a firm may infer a private signal from the strategy played by the other. Thus, firms must formulate their optimal strategies in a context of imperfect information. We evaluate the resulting compound option with information revelation as an American compound exchange option using Monte Carlo simulations. We then show that different equilibria may arise.     

MACRS DEPRECIATION WITH A SPREADSHEET FUNCTION: A TEACHING AND PRACTICE NOTE

While Excel? and Quatlro Pro? do not have a function MACRS(cost, class life, year), they do have a variable declining balance function, VDB, that can be used to compute annual MACRS depreciation amounts. A literature search of journals and texts did not find examples using this function nor did it find other shortcut approaches to MACRS calculations. A built-in spreadsheet function is clearly superior to relying on hard coding percentages copied from texts or IRS tables or building tables to calculate MACRS percentages. This article 1) describes the underlying definition of the variable declining balance function (VDB), 2( notes some quirks and errors in other spreadsheet depreciation functions and accompanying explanatory material. 3) shows how VDB can be used to calculate MACRS depreciation, 4) provides an example of its use. and 5) suggests useful further developments.     

TECHNICAL NOTE A MODIFIED EOQ MODEL WITH TEMPORARY SALE PRICE DERIVED WITHOUT DERIVATIVES

Most previous works applied differential calculus to derive optimal solutions for economic ordering policy. The formulations are suggested in this short note to show that optimal solutions can be derived algebraically without using differential calculus to treat the EOQ model with a temporary sale price.