A NOTE ON BIAS IN CAPITAL BUDGETING INTRODUCED BY STOCHASTIC LIFE

This note extends work by Young and Contreras and by Rosenthal on the present worth of cash flows under uncertain timing. In capital budgeting analysis, the use of the expected life of a project instead of the life distribution of the project biases the estimate of its expected net present value. In most situations the bias results in an overestimate of the expected net present value of the project. When the exact life distribution is unknown, the bias can be approximated by Taylor series expansion. The sensitivity of the bias to the discount rate, to cash flow patterns, and to income taxes is also investigated.     

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 HIERARCHY–TEAM DEBATE

This note explores the debate between proponents of organizational learning who have criticized hierarchy as an obstacle to learning and those who have defended hierarchy as indispensable for large organizations. By considering hierarchy and team as ideal-typical information systems, it is argued that both teams and hierarchies are essential for organizational learning in large organizations. Teams appear to be the key learning units which are indispensable for producing and understanding novel information, and hierarchies are indispensable for processing and storing important learning results. The trade-off between teams and hierarchy can be solved by emphasizing the idea of circularity, involving the ability to switch between teams and hierarchies as complementary information systems in the context of organizational learning.     

A TECHNICAL NOTE ON THE MATHEMATICS OF NON-ANNUAL COMPOUNDING

An expected return-systematic risk (r,β) criterion is used to develop a decision framework for investing in inventory. The direct incorporation of risk in the model in the context of the Capital Asset Pricing Model avoids the shortcoming of exogenous risk specification, which is inherent in both the return on investment and cost minimization criteria commonly employed in inventory management.     

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.