RANKING MUTUALLY EXCLUSIVE PROJECTS: THE ROLE OF DURATION

This paper develops a new measure of cash-flow timing called “return duration.” Numerically quite close to Macaulay duration, return duration is a straightforward function of a project's net present value (NPV) and internal rate of return (IRR). When comparing mutually exclusive projects, differences in return duration can explain ranking conflicts between NPV and IRR. The paper also clarifies the conditions under which a manager should consider duration or generalized NPV before making investment decisions when faced with such ranking conflicts.     

A review of: “ENGINEERING ECONOMY, 4th. Ed.” By E. Paul DeGarmo The Macmillan Company 1967 532 pp. $10.95.

A risk measure, expected opportunity loss (EOL), is introduced to quantify the potential loss of making an incorrect choice in risk-based decision making. Different from Savage's (1951 Savage, L. J. 1951. The theory of statistical decision. Journal of the American Statistical Association, 46(253): 55–67. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) minimax regret principle, EOL can account for the unbounded continuous random outcomes of alternatives and decision makers’ acceptable risk. This article studies the effects of the forms of loss function, correlation among outcomes, and the acceptable risk on the ranking results by considering the loss function in the power form. The results show that the loss functions and the outcomes correlations can significantly influence the rankings of alternatives in risk-based decision making.     

Discounting Indices Proposed for Capital Investment Evaluation: A Further Examination

A recent publication [2 Bernhard , Richard H. , “ A Comprehensive Comparison and Critique of Discounting Indices Proposed for Capital Investment Evaluation ,” The Engineering Economist , Volume 16 , Number 3 , Spring 1971 .[Taylor &; Francis Online] , [Google Scholar]] in this journal presented a comprehensive comparison and critique of discounting indices proposed for (i) the examination of whether a proposed independent project should be accepted and (ii) selection of a project from a set of mutually exclusive projects. The present paper examines procedures available in the literature of engineering and managerial economics and in practice for selecting projects from a given number of proposed capital investment projects, if a given capital constraint does not permit the undertaking of all proposed projects. It appears that the present state of the art is subject to much controversy and confusion. The ensuing presentation intends to rectify this situation. In addition, a procedure for the above selection problem is developed. Usage of this procedure is recommended for the many policy makers who are continually faced with the trade-off between elaborate methods on the one hand and cursory /approximations on the other.     

Negative externalities of close guanxi within organizations

In this conceptual article we present a critical analysis of close guanxi, i.e., close personal connections, in terms of their negative externalities on organizations. We adopt a social dilemma perspective and examine how close guanxi parties, while cooperative toward each other, may nevertheless defect against the organization, causing negative externalities. We contend that relationalism exacerbates such negative effects of close guanxi and propose various institutional mechanisms and individual variables that can reduce them. Finally, we discuss research and practical implications of solving social dilemmas of close guanxi in Chinese organizations and strong ties in Western organizations.

The adolescence of Asia management research: <Emphasis Type="Italic">APJM</Emphasis>, 1997–2006

In this article we reflect on the adolescent years of Asia management research published in the Asia Pacific Journal of Management (APJM) by reviewing work published in the past 10 years (1997–2006). We report that during the last decade, APJM has published 223 research articles, written by 373 different authors, who are affiliated with 203 different institutions. Our discussion of the future of Asia management research is guided by Kuhn’s (Kuhn, T. S. The structure of scientific revolutions. Chicago: University of Chicago Press, 1962) perspective on the nonlinear progression of science. We argue that as a growing community, Asia management research is finding its “identity” and establishing its presence in the larger worldwide management research community. Following our analysis, we conclude that the growth of Asia management research—as captured by APJM publications—throughout its “adolescent” years has set forth a challenging and exciting path for the future. All authors contributed equally. We thank Mike Peng (Editor-in-Chief) for his encouragement and advice. This work was completed when Yu-Shan Su was a Fulbright visiting scholar at the University of Texas at Dallas (UTD). She thanks the Fulbright Association and the Taiwanese Ministry of Education for partially funding this work.

---

Japanese <Emphasis Type="Italic">keiretsu</Emphasis>: Past,present, future

This article reviews major theoretical and empirical work on vertical and horizontal Japanese keiretsu. We first outline the history, characteristics, and strategic and performance implications of each type of business group. We then discuss changes in the Japanese economy during the post-1992 Japanese economic decline and their implications for the persistence and continued benefits of each form of inter-corporate grouping followed by a discussion of empirical findings regarding the continued role of keiretsu in the Japanese economy. The review concludes by exploring areas of future research into the evolution of keiretsu ties and their implications.

Double vision: Insights about the origin and interpretation of multiple IRRs

The ability of a project's internal rate of return (IRR) to quantify its economic return has been questioned by many scholars over the past 60 years, most recently by Magni (2010 Magni, C.A. (2010) Average internal rate of return and investment decisions: a new perspective. The Engineering Economist, 55(2), 150–180. [Google Scholar], 2013 Magni, C.A. (2013) The internal rate of return approach and the AIRR paradigm: a refutation and a corroboration. The Engineering Economist, 58(2), 73–111. [Google Scholar]). Although IRR is a plausible—albeit imperfect—measure of a project's economic return when the cash flow stream is conventional, IRR can be an untenable measure of an unconventional project's economic return. The goal of this article is to identify a simple, intuitive explanation of IRR, one that can be applied to any cash flow pattern. To do this, the article shows how a project's IRR systematically changes when it first crosses from the conventional into the unconventional realm (i.e., a small cash outflow is appended to a conventional cash flow stream) and then as it becomes progressively more unconventional. This process reveals that the most robust economic interpretation of IRR—for both conventional and unconventional projects—is that a project's IRRs are external benchmarks that divide the set of all plausible discount rates into positive and negative net present value (NPV) ranges, rather than internally generated returns. Because it can be difficult to estimate a project's cost of capital with precision, this information can help guide the sensitivity analysis of a project.     

The influence of firm,industry and network on the corporate social performance of Japanese firms

We develop and test the thesis that corporate social performance (CSP) constitutes a socially constructed and shared strategic asset, which is not only influenced by factors specific to a firm, but also by the social performance of firms in its industry and inter-corporate network. Using variance decomposition, we analyze data from 130 large Japanese firms and find that both firm-specific and industry-level factors account for significant variance in CSP, but network-level factors do not.

MICROCOMPUTER SOFTWARE COSTING LESS THAN $1000 FOR ECONOMIC AND MULTI-ATTRIBUTE DECISION ANALYSIS∗

Commodity price simulation is useful in many engineering economics applications, yet discrete approximations of the continuous stochastic processes used in modeling commodity prices are not always straightforward. This article describes the exact solution for discretely simulating the Schwartz and Smith (2000 Schwartz, E. and Smith, J. E. 2000. Short-term variations and long-term dynamics in commodity prices. Management Science, 46(7): 893–911. [Crossref], [Web of Science ®] , [Google Scholar]) two-factor model of commodity prices.     

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.     

Technological capabilities and firm performance: The case of small manufacturing firms in Japan

The purpose of this study is to investigate the relationship between technological capabilities and firm performance. We divide technological capabilities into two types—refinement capability, which involves the improvement of the existing asset portfolio, and reconfiguration capability, which involves the restructuring of the asset portfolio through the integration of new assets. The results of an analysis of a sample of 302 small and medium-sized manufacturing firms in Japan suggest that refinement capability relates more positively to operational efficiency than does reconfiguration capability, and that reconfiguration capability relates more positively to strategic performance than does refinement capability. The results also suggest that firms with superior refinement capability tend to possess superior reconfiguration capability. Our findings show that both external and internal factors, such as technological volatility, inter-firm collaboration, and firm age and size, are significantly associated with the level of refinement and reconfiguration capabilities possessed by a firm.

Applying Target Costing in the Development of Marketable and Environmentally Friendly Products from Swine Waste

Management of swine waste generated in the United States is a challenging problem facing engineers, farmers, scientists, regulators, and policy-makers. Technologies for processing and storing swine waste have not been fully developed and refined in a manner acceptable to the public and environmental regulators. The primary concerns with improperly disposed swine waste are the effects on human and livestock health, surface and groundwater quality, air quality, and conservation of nitrogen fertilizers (Hagenstein 2003 Hagenstein, P. R. 2003. Air Emissions from Animal Feeding Operations: Current Knowledge, Future Needs, Washington, D. C.: National Research Council, National Academy Press.  [Google Scholar]).

The purpose of this study is to demonstrate the concept of target costing by applying it to a very specific example: the production of biomethanol from swine manure. This study summarizes the analyses that outline a design and calculate a preliminary cost estimate for a proposed system for producing biomethanol from swine manure (initial process). In this study the target costing process is demonstrated with calculation of a target cost. This article also demonstrates an application of value engineering as a systematic, interdisciplinary examination of factors affecting the cost of a product so as to find means to fulfill the product's specified purpose at the required standards of quality and reliability and at an acceptable cost.

The article is organized as follows. First, the purpose of applying target costing methodology to the development of marketable by-products from swine manure is outlined. Next, target cost is calculated for biomethanol made from swine manure based on current methanol prices and currently available subsidies for biomethanol made from swine manure. A system for producing biomethanol from swine manure is described. The current cost is calculated for producing biomethanol. Concepts of value engineering are employed to reduce a significant cost component of the initial process resulting in Process II. Finally, value engineering is employed the second time to further reduce the cost of Process II yielding Process III.     

Information sources used to select different types of management consultancy services

Understanding how professional services are purchased is vital to the success of the firms that provide such services. Although recent research has provided some insights into how consumers purchase professional services, little is known about how organisations buy these services. Our study, using data collected from 253 Australian organisations, describes an important part of the organisational buying process, namely pre-purchase information search. More specifically, we examine the influence of a range of information sources on the choice of a management consultant in the following areas: strategic and economic planning; marketing; human resource management; information technology; production planning and logistics. The results show that information sources related to an organisation's internal network (ie, discussions inside the company, and past dealings with a consulting firm) were by far the most influential information sources in choosing a consultant. Further, the least influential sources were impersonal advertising (ie, advertising in the business press, corporate brochures and professional directories). Only minor differences in the influence of the information sources were found across the various types of consulting assignment.(The authors' names are in alphabetical order.)