Discount Rate Method Research Articles

ІНВЕСТИЦІЙНЕ ЗАБЕЗПЕЧЕННЯ РОЗВИТКУ АГРАРНОГО СЕКТОРА: ТЕОРІЯ, МЕТОДОЛОГІЯ, ОЦІНЮВАННЯ

The article considers the theoretical and methodological foundations of assessing the investment security of the agricultural sector. Methodological approaches to the assessment of investment activity, investment potential and investment attractiveness have been studied, including: "Payback period (PP)"; "Discounted cash flows (NRV)"; "Internal rate of return (IIR)"; "Non-discounted rate of return (ARR)"; Net Present Value (NPV), Expected Net Present Value (ENPV), Sensitivity Analysis (SA), Risk-Adjusted Discount Rate (RADR) method. It is proved that these methods have their own advantages and disadvantages and do not always adequately reflect the interests of investors regarding the completeness of the assessment of investment attractiveness. In addition, many of the methods are very specialized and do not fully take into account the characteristics of investment attractiveness of different levels of the economic system: countries, industries, regions, enterprises and investment projects; they do not provide an integrated assessment of the aggregate content of investment attractiveness. It is proposed to assess the investment security of the agricultural sector by assessing its investment potential, which contains a set of interrelated components that may change over time; it is a dynamic system that can be influenced by certain actions, accordingly; it is appropriate to build an integrated indicator using the method of taxonomy, the use of which is determined by the complexity of the studied economic phenomena and processes, their versatility and ambiguity. The algorithm of formation of taxonomic indicator of investment potential of agrarian sector is resulted, the basic indicators which determine components of investment potential of agrarian sector are defined. In addition, the obtained result will provide a quantitative determination of the level of investment support of the agro-industrial sector of Ukraine, which will further determine the areas of improving the efficiency of investment support for the development of the agricultural sector.

Discount rate method in Yi Jing

Discount rate method is a tool for asset pricing in the theories of investment and corporate finance, using discount rate to exchange from the future cashflows to the present value, but some limitation of this method could not exchange capital cost (WACC) for capital charges ($WACC) exactly at each time. The aim of this paper is to exploit an exchange tool based on a consequent of inflows (yang) and outflows (yin) relevant to an ancient graphic of He Tu in Yi Jing, to repair some limitation of discount rate method for paying stakeholders' capital charges. The methodology of yin-yang consequent in Yi Jing is a new approach in finance to support a financial plan in investment projects, including banks' debts (D) with interest rate (Rd) exchanged for cash interests ($Rd), and shareholders' equity (E) with equity cost (Re) exchanged for dividends ($Re) in whole process of investment operating on their capital budgeting. A contribution of yin-yang consequent in Yi Jing to the theories of investment and corporate finance gives some provision of minimum cash to control liquidity risk for payment of capital charges higher than the provision of minimum cash in management of investment project. So, the methodology of exchanges from capital cost to capital charges makes a premise for value-based asset pricing.

Why the risk-adjusted discount rate method is a better method than the certainty equivalent method: a teaching perspective

One of the more popular methods of risk analysis in capital budgeting is the certainty equivalent method. In this paper, we discuss the major drawbacks of using this method, and strongly argue in favour of the risk-adjusted discount rate method. The calculation of certainty equivalent factors, the use of risk-free rate as the discount rate, the reinvestment rate assumption and the practical problems for multinational corporations for using the certainty equivalent method are discussed. We also discuss the concept of cost of capital and its role in relation to the use of the two methods of risk analysis.

Why the risk-adjusted discount rate method is a better method than the certainty equivalent method: a teaching perspective

Why the risk-adjusted discount rate method is a better method than the certainty equivalent method: a teaching perspective

Perspective Index in Company X from 2004–2013

Abstract: perspective index (Takahashi, 2014) was tested in a company that has been successful in the process of organizational reform, Company X. An exhaustive survey (Survey X) for all employees was conducted once a fiscal year from 2004 to 2013. According to Survey X, over 13,000 employees showed near-perfect linearity between perspective index and job satisfaction ratio/turnover candidate ratio. Each occupational and rank category also showed a near-straight line, although the values greatly varied per year before and after organizational reform. However, the incline and intercept points of the lines somewhat differed contingent on the occupational and rank category. This might explain the difference between data from Survey X and that of the JPC Survey conducted in Takahashi (2014).Keywords: on future perspective index, job satisfaction, turnover1. IntroductionAt present, many Japanese firms are enduring highly competitive environments to make and are tight fisted in terms of paying salaries and dividends. Even if they do not provide accountability, they unfailingly reserve profits internally for investments in further expansion (Takahashi, 2013). Takahashi (1996a, 1996b, 2013) states that this behavior follows the leaning on future principle, a decision principle using which people choose a better future rather than act on present mercenary motives based on the past results.According to Takahashi (2013), even in the 1990s Japanese companies hardly applied the discount rate in investment decisions, whereas American companies rapidly adopted the discount rate method of valuation since the 1960s (Kim 8s Farragher, 1981; Klammer, 1972). This behavior of Japanese companies also holds for the on future because if Takahashi's (2013) future parameter1 w is any less than 1, even a large earned 10 or 20 years later will be almost nil after being multiplied by w10 or w20. Accordingly, even though the expectation values of long-term profit will definitely converge, it is similar to focusing on near-future profits and ignoring distant-future profits. If the future parameter w = 1, the divergence of the expected makes nonsense of discount rate methods, such as the use of net present value (NPV) when making investment decisions. This is the case of Japanese companies having a high future parameter w » 1. Under such circumstances, we witness The Ant and the Grasshopper (Aesop's Fable) phenomenon in everyday life.Abegglen's lifetime commitment between a company and an employee-the company will not discharge him even temporarily except in the most extreme circumstances. He will not quit the company for industrial employment elsewhere (Abegglen, 1958, p. 11)2-is an example of future parameter w » 1. In this situation, cooperation can easily occur even between mutual enemies (Axelrod, 1984).3 This is seen in labor union cooperation between capital and labor in Japanese companies.The present paper uses the perspective index developed by Takahashi (1996a) to conduct Survey X, an annual survey conducted ten times at Company X, which has been successful in organizational reform. This paper also compares this data with that of the JPC Survey used in Takahashi (2014).2. Change of Company XSurvey X is an exhaustive survey for all employees of Company X and conducted once a fiscal year. questionnaires were distributed at the same time to all the employees and collected once filled (placement method). Like Takahashi, Ohkawa, and Inamizu (2014, in press), this paper uses data gathered over ten years, that is, from the fiscal years 2004-2013. survey was conducted in October 2004, September 2005, and February from 2007 to 2013. Data from 13,230 out of 13,383 surveys distributed were collected during the ten-year period, which mean response rate is 98.9%.The most dramatic change during the ten-year duration of Survey X was the restructuring of the company between 2005 and 2006. …

交通社会資本評価における環境アセットマネジメント手法の提案：LRT整備プロジェクトへの適用

Objective. Results of life cycle assessment on infrastructure include large uncertainty because of its long lifetime and the difficulty of scenario setting. This study aims to propose an “environmental assets management method” for managing such uncertainties with the LCA on infrastructure, and especially explains the treatment of time.Results and Discussion. Several problems have been pointed out for the “lifetime method”, which fixes lifetime of objective goods or service, and total amount of the environmental load during lifetime is evaluated (normally carried out for LCA). It is difficult to set the maintenance technology or situation in long term use of the transport system and it is one of the main factors of uncertainty. Instead of the lifetime method, the “discount rate method” in which the amounts of environmental loads occurring in the future are discounted is proposed. However, it is also difficult to scientifically determine a value of discount rate that can be applied to CO2 emissions calculation. “Environmental assets management” as an alternative framework for assessment in which emissions calculation. “Environmental assets management” as an alternative framework for assessment in which cash flow method, the rates of return for cases are analyzed, in which an up-front investment produces a benefit in the future, such as in real estate or securities. An environmental yield rate (EYR) indicator determines whether it is possible to recover the “investment for environmental improvement”. A method for examining when and what to invest is described. The method can analyze: 1) when to renew after entering service stage, 2) the timing to start the objective project, 3) what to provide.Conclusions. The methodology is applied to provision project of the light rail transit (LRT) and some other modes. It is concluded that the temporal environmental assets management method enables us to evaluate various types of “investment for environmental improvement in the future” projects without setting the lifetime or the discount rate. Also, since the unit of index is either [years] or [%], it is possible to compare projects with completely different scales and types.

Net Discount Rate and Below-Market Discount Rate: Two Methods in Forensic Economics

Abstract No abstract available.

The Below-Market Discount Rate Method Vs. East Coast Black Magic

Abstract No abstract available.

The Below-Market Discount Rate Method: Junk Science in the Courtroom?

Abstract No abstract available.

Evaluating capital investment projects

AbstractThe risk‐adjusted discount rate method for evaluating capital investment projects applies the risk‐adjusted rate to equilibrium as well as disequilibrium expected returns, leading to biased NPV calculations. This paper uses the CAPM framework, and suggests a procedure for applying the risk‐adjusted rate without causing a bias. The procedure is shown to result in NPVs identical to those obtained by the certainty equivalent approach. A comparison with a previously suggested procedure is also provided.

The Refunding of Discounted Debt: An Adjusted Present Value Analysis

In a recent article [5], Gene Laber discusses two models for the analysis of bond refunding. The Adjusted Discount Rate method handles tax benefits of new debt financing by using an after-tax rate to discount the incremental cash flows of a proposed refunding. The Adjusted Present Value method (building on work by Myers [8]) uses pre-tax discount rates but adds the tax shields of new debt to the cash flows. Laber demonstrates that the two models can yield conflicting answers. He recommends the Adjusted Present Value method because it 1) spells out the financing assumptions made in a refunding analysis, and 2) involves essentially the same computational effort as the adjusted discount rate approach. Throughout his paper, Laber discusses the case in which the existing bond is to be replaced by a newlyissued bond carrying a lower coupon rate. The purpose of this note is to apply Laber's framework to the refunding of discounted debt in which the newly-issued bond carries a coupon rate higher than that of the old bond. As will be demonstrated, the Adjusted Present Value method clearly displays the reasons for potential benefits in refunding such discounted debt. These benefits result from increased corporate tax shields on interest payments. That these benefits exist supports earlier work (e.g., Kalotay [4]); however, plausible numerical values still suggest that the refunding of discounted debt is not likely to be profitable (supporting, for example, Laber [6]). Specific conclusions on the desirability of such refundings must await detailed empirical research.

Valuation Under Uncertainty: Comment

In “Valuation Under Uncertainty,” which recently appeared in this Journal (September 1967), Houng-Yhi Chen argues [1, pp. 313–314] that “Robichek and Myers' criticism [2, 3] of the use of the risk-adjusted discount rate is unfounded,” and suggests that our “conclusions must be based in part on a misunderstanding of the risk-adjusted discount rate method.” These charges are without foundation, as we will show here.

Valuation Under Uncertainty

Broadly speaking there are two models to the problem of asset valuation under uncertainty and aversion to risk. Under one, the certaintyequivalent method, each future return is converted to its certainty equivalent and discounted at the pure rate of interest. Under the other, the risk-adjusted discount rate method, each future return is discounted at an appropriate discount rate. The interrelation and validity of these models of asset valuation have come under discussion in two important works on stock valuation.