Economic Depreciation Research Articles

How Property Rents and Expenses Depreciate: A Case of Tokyo Office Properties

This is the first comprehensive study on the age profile of new rents, average rents, operating expenses, net operating income, capital expenditure, and net cash flow for office properties in Tokyo. There are four main findings. First, the rate of rental depreciation in Japan is low and explains less than half of the rate of depreciation of property prices, although it is higher in earlier years. Second, average rents exhibit nominal rigidity. Third, approximately half of the observed depreciation in new rents is due to physical deterioration as opposed to functional obsolescence, which is driven by changes in tenant preferences and advances in building technology. Last, operating expenses are independent of age, whereas capital expenditure increases in the first 20 years. Our study contributes to the literature by estimating depreciation rates for commercial real estate rents, costs, and cash flows, with new insights into the detailed age profile and sources of economic depreciation.

Enhancing Accuracy and Consistency in the Valuation of Plant and Equipment through Cubic Regression Models of Physical Deterioration

The valuation of plant and equipment often involves valuers deducting physical, functional and economic depreciation from replacement cost estimates. These calculations have faced accuracy and consistency problems in the aspect of determining how much physical deterioration should be deducted. This study attempted to develop cubic regression models to resolve these accuracy and consistency problems in the basic metal, iron and steel and fabricated metal product sectors in Ogun state, Nigeria (Sango Ota and Agbara). Questionnaire surveys were administered on senior operators of plant and equipment in these sectors to draw information on the degree of physical deterioration of plant and equipment over service life, using expenditure on repairs as a proxy for physical deterioration. The questionnaire sought information on the service lives of plant and equipment, the pattern of physical depreciation over the service lives, and the degree to which the pattern is influenced by various operational factors. Data were analysed using means, standard deviations, multiple linear regressions and cubic regressions, to produce what could be the first potentially accurate and consistent valuation model of physical deterioration in Africa. The service lives of various plant and equipment were found to range at various times between 8 to 60 years. Cubic regression analyses showed that the pattern of the movement of transitions of expenditure on repairs (proxy for physical deterioration) over useful life of plant and equipment were not linear but cubic, and generally followed S-shaped patterns. Multiple regression analyses showed that the S-shaped patterns were in turn influenced by operational factors (such as intensity of use and power outages). The study concluded that valuers’ interests in accuracy and consistency in plant and equipment valuation were not served by any of the accounting methods hitherto used by valuers; accuracy in physical deterioration modelling follows an S-shaped transition over time.

Optimal investment timing and size decision‐making with jump risk and time‐inconsistent preferences

AbstractThis paper analyzes a firm's investment timing and capacity decision by considering the manager's time‐inconsistent preferences and continuous economic depreciation of the capital stock cannot be completely offset. The demand shock of the underlying product evolves according to a double exponential jump‐diffusion process. Within a real options framework, we derive the explicit expressions for the optimal investment threshold and investment size when the manager is sophisticated. We find that time‐inconsistent preferences will lead the firm to delay investment when capital depreciation rate is low and accelerate investment when the rate of capital depreciation is high. Further, we show that capital depreciation rate has a monotonic positive effect on the investment size of a time‐consistent manager but a non‐monotonic effect on that of a sophisticated manager. A sophisticated manager tends to choose a smaller investment size than a time‐consistent manager. Finally, we demonstrate that compared with the geometric Brownian motion, the firm invests later with a larger capacity under the jump‐diffusion model.

A robust model to estimate a firm’s average economic return

Theoretical studies question the ability of financial statement information to provide evidence about a firm’s economic performance, as the mathematical relation between a firm’s accounting and economic returns becomes intractable when economic depreciation is defined endogenously—as a function of the firm’s cash flow stream—and when its internal rate of return (IRR) and investment growth rate have not been constant. This paper derives a new equation, called the average internal rate of return (AIRR) estimation model, in which a firm’s AIRR is estimated as a function of its current-year accounting return, its current-year asset growth rate, a measure of accounting conservatism, and a term that identifies the firm’s historical investment growth rate trend. Because the model allows economic depreciation to be defined exogenously, non-constant returns and growth rates can be aggregated across investment cohorts, allowing a firm’s accounting return to be reconciled to its average economic return. One such exogenous schedule—called competitive market depreciation—is used to illustrate the model’s implications. The AIRR estimation model empowers analysts to identify the direction and magnitude of the potential difference between a firm’s accounting and economic return created by fixed asset depreciation, accounting accruals, and the immediate expensing of intangible assets.

Economic analysis of the feller buncher in Brazilian Eucalyptus plantations: modeling with time series

ABSTRACTIn the context of increased demand for timber, forest managers must consider best practices in forest management and harvesting operations. Depending on the harvesting systems adopted, the uncertainties of the cost components may reflect the volatility of productivity and the expected value of the project. We investigated whether the uncertainties of the cost components have an influence on the productivity volatility and the expected value of the mechanized timber harvesting investment project with a feller buncher. Monthly feller buncher productivity volatilities were measured based on the absolute value of the percentage variation in the deviation of the cost and productivity components. We modeled productivity and cost components using geometric Brownian motion to estimate project value. Productivity showed a strong positive correlation with the cost components of economic depreciation, supervisor labor, fuel, and operator labor. Lubricating oil and economic depreciation were the most volatile cost components. Considering the deterministic economic analysis, the net present value was USD 3,849,619. When considering the probabilistic economic analysis, the average net present value was USD 187,319 ± USD 1,275,033. We verified that economic depreciation and fuel influenced feller buncher productivity. The uncertainties of these components affect the economic viability of the feller buncher in Eucalyptus plantations.

How much does it cost to implement a community-based walking football programme for patients with type 2 diabetes?

ObjectivesThe current study analysed the implementation costs of a community-based walking football exercise programme for patients with type 2 diabetes.MethodsThe direct costs of a community-based walking football programme for middle-aged...

How economic depreciation shapes the relationship of uncertainty with investments’ size & timing

This paper identifies and analyzes the effects of the rate of economic depreciation of capital stock on a monopolist’s investment option and capacity decision in a dynamic and uncertain market environment, where continuous economic depreciation cannot be fully offset. We find that the firm’s capital stock is increasing in the rate of depreciation for low rates and decreasing for higher rates. Further, when considering the timing of investment, we show that the effect of uncertainty on investment is level-dependent on the rate of depreciation: only for sufficiently high rates of depreciation there is a positive relationship between capital investment and uncertainty, and the impact of uncertainty on the present value of the firm is mitigated. The fact that the impact of economic depreciation on the firm’s investment problem is level dependent demonstrates that its consideration by investors and managers is not trivial.

THE GAINS OF THE PRACTICE OF RELIGION ON NATIONAL DEVELOPMENT IN THE PRE-COLONIAL AND CONTEMPORARY NIGERIA: A COMPARATIVE ANALYSIS

Over the years, it has been observed by scholars that many countries in Africa are facing the terrible debacle of underdevelopment and Nigeria is one of Such. The challenge is vivid in her educational, social and economic depreciation. This work examined the reasons for this state and sketched what religion had impacted on the development or otherwise of the country Nigeria in the Pre-colonial and colonial period vis- a vis contemporary time to ameliorate her state. It discovers that the practice stemming from wrong understanding of religion is not out of the reasons responsible for this debacle. Descriptive and historical methods of analysis were used in this study. It was further exposed that beside venality, lack of good governance and religious intolerance contribute largely to underdevelopment in Nigeria. While it is acknowledged that religious sects have contributed significantly to national growth through the establishment of schools for formal education, hospitals for health care delivery services, instilling morals in religious and political arenas, economic development through micro loans in corporation with directorate of rural farmers and artisans, establishment of peace and justice commissions, other humanitarian services, and playing her role as a prophet and the conscience of the nation; it is also acknowledge on the other hand that religion had been used in fomenting lots of evils. The article therefore recommended an enhanced cooperation between the government and the different religions in order to further enhance peaceful co-existence and continuous national developments through those aforementioned services as it is known for in the pre-colonial and immediate post-colonial days. It further recommended continuous preaching of socio-religious values of hard work, integrity and honesty in order to fasten the bid of national development.

DEVELOPMENT OF DETERMINATION METHODOLOGY OF THE EXTERNAL (ECONOMIC) DEPRECIATION INFLUENCE ON THE COST OF REAL ESTATE OBJECTS UNDER MODERN CONDITIONS

The purpose of the scientific work is to develop a methodology for determining the impact of external (economic) depreciation on the value of real estate. The essence of external (economic) depreciation is analyzed, in particular, the nature of its impact on the value of real estate over time is determined. Traditional methods of determining external (economic) depreciation were studied, their analysis and grouping were performed, and an algorithm for the use of traditional methods was developed. The necessary prerequisites for the application of these methods, their advantages and disadvantages were determined, and the results of practical testing were analyzed in the study [4]. It was concluded that for the effective application of traditional methods of determining external depreciation, it is necessary to have a sufficient amount of information about the real estate market and high liquidity of the property. It was found that it is problematic to apply the considered methods to specialized, illiquid or nonliquid property, which, in particular, includes transport infrastructure objects. Using the results of the study [4], it is proposed to additionally apply two specific methods (method of power dependence, object liquidation method), which take into account the lack of information about the real estate market and the specifics of specialized objects. Adaptation of methods of power dependence and object liquidation to real estate in the field of transport infrastructure has been carried out. Based on the proposed methodology, an algorithm for estimating the value of real estate, taking into account economic wear and tear, was developed. Scientific novelty and practical significance. The scientific novelty of the study is the development of a methodology and algorithm for estimating the value of real estate, taking into account economic depreciation, based on the determined liquidity of real estate. The practical value of the proposed algorithm and methodology is ensuring the possibility of their application to various types of objects, in particular, to specialized and non-specialized, liquid and illiquid, private and public. This becomes especially important in modern conditions, when there is a need to assess the property damaged by the war in order to carry out its recovery, repair, reconstruction or liquidation.

P02-12 The implementation cost of a walking football exercise program for patients with type 2 diabetes: a case study of SWEET-Football (Portugal)

BackgroundEconomic analysis of health interventions is essential to the development and implementation of sustainable health policies, especially in noncommunicable diseases area. Type 2 diabetes (T2D) is one of the most relevant noncommunicable diseases globally. Regular physical activity is an established cornerstone of T2D control, with benefits in glycemic control, cardiovascular risk factors and quality of life. Thus, the current study aimed to assess the cost of a community-based physical activity intervention for patients with T2D.MethodsWe assessed the SWETT-Football program - a community-based walking football exercise program for middle-aged and older male patients with T2D. The program was tested in Portugal through a scientific project (NCT03810846) funded by FIFA (FIFA Research Scholarship 2018). One season of this program consists of three sessions per week (60 minutes per session) during nine months (October to June). For the calculations, we considered a total of 40 patients (two groups of 20). We calculated the direct costs of one season for the host institution: 216 hours of renting a sports hall and hiring human resources (a football coach and a nurse); cardiac stress tests and sports insurance for the participants; sports equipment (balls, cones, vests); vital signs monitoring equipment (blood pressure, heart rate and capillary blood glucose); logistical equipment (disposable and non-disposable); and technical training. In addition, we considered an economic depreciation of five years for sports and electronic materials. Cost analysis dated January 2022.ResultsOne season of this program for 40 patients with T2D was estimated to have a total implementation cost of 11,026.51€: 1,225.17€/month; 275.66€/patient; 51.05€/session; 30.63€/patient/month; and 2.55€/patient/session.ConclusionsA community-based walking football program for patients with T2D has an affordable cost and is feasible for large-scale implementation by local communities with the involvement of football clubs, municipalities and primary health care units, promoting physical activity and contributing to T2D control.

The rapid economic depreciation at an early stage of building life among Japanese detached houses

While houses in Asian countries have attracted international attention for the active new housing construction and rapid demolition of existing houses, empirical evidence on the structure depreciation curve is scarce. Employing a unique dataset of nationwide housing transaction prices collected by the Japanese government, which is decomposed into structure and land values by market participants, this paper formally estimates the structure depreciation curve of Japanese detached houses. First, structure value is lost by as much as 50% during the initial 10 years following construction, and the depreciation gradually continues until the property is around 30 years old. This implies that “taste for newness” at an early stage of building life (or depreciation between new houses and relatively new resale houses) is significant, and structure value is lost much faster than measured by demolition during the latter stage of building life. Second, while this trend is robust across regions and over time, the depreciation from new houses to relatively new resale houses is becoming smaller in recent years, and it is smaller in urban areas than in rural areas. This implies a recent potential for utilizing existing housing stocks, especially in urban areas in a matured society, to which other developed Asian countries or developing countries may proceed in the future.

How economic depreciation shapes the relationship of uncertainty with investments' size & timing

How economic depreciation shapes the relationship of uncertainty with investments' size & timing

Investment, capital stock, and replacement cost of assets when economic depreciation is non-geometric

This paper extends the Q-theory of investment to capital goods with arbitrary efficiency profiles. When efficiency is non-geometric, the firm’s capital stock and the replacement cost of its assets are fundamentally different aggregates of the firm’s investment history. If capital goods have constant efficiency over a finite useful life, simple proxies are readily available for both the replacement cost of assets in place and capital stock. Under this assumption, we decompose the total investment rate along two dimensions: into its net and replacement components, and into its cash and non-cash components. We show these components exhibit significantly different economic determinants and behavior.

Depreciation Rate by Industrial Sector and Profit after Tax in China

This study examines how asset values by industry sectors are affected by different depreciation methods. We theoretically show that estimating depreciation rate by the Perpetual Inventory Method (PIM) contains more information than the method by Depreciation Expense as Accounting Item (DEAI), which are equivalent under certain conditions. Using data of 37 industrial sectors in China from 2001 to 2016, we estimate depreciation rates by sectors using both PIM and DEAI methods, which enable us to estimate capital stock and capital efficiency by sectors. By the panel estimation, depreciation rates estimated by both PIM and DEAI methods significantly increase with the enterprise's profits after tax defined by that profits before tax minus tax. Our result is consistent with the prediction of the economic depreciation hypothesis, implying that tax shield of depreciation that raises corporate after-tax cash flows to the firm could improve corporate investments for replacement by scrapping the old equipment.

P0312 / #1241: CORRELATION OF A COUNTRY’S ECONOMY AND THE EARLY WEANING: AN INTEGRATIVE REVIEW

Aims & Objectives: Breastfeeding presents itself as a potential health indicator regarding the newborn’s nutrition. The country’s economy plays a direct role in the mother’s social context and the conditions for her child’s care, including feeding. The study aims to search in the literature the correlation of economic aspects of the countries and the incidence of early weaning. Methods: Integrative review following two stages: problem formulation, literature search with pre-established terms: Breastfeeding, Weaning, and Economics. Evaluation and analysis of the data and presentation of the results. There were eight articles found in Virtual Health Library, two in Scielo and fifty-nine in PubMed, excluding repetition, sixty-five articles remained. After all abstract readings, there fifty-seven articles were excluded. In that way, eight scientific articles that fit within the inclusion criteria made the sample. Results: The country’s economy interferes directly in the economic situation of the newborn’s family, for example, in the family income and the decisions regarding the child’s feeding. Studies show a correlation between the economic situation with the early weaning and discuss the economic depreciation of the woman in the breastfeeding practice, the need for the accounting of breastmilk in the country’s economy for its predilection, and expansion of the artificial milk commercialization and its impact on economy and weaning. Conclusions: The studies correlate the country’s and family’s economic situation with early weaning, describing determinant factors for this ending and their possible implications for the newborn’s health.

Analysis of Sovereign External Debt Variations by Cross Wavelet Transform

Since the 1970’s developing and developed countries have experienced unprecedented public debt levels. This surge in public debt has emphasized the importance of public debt management. Since risks such as reducing economic growth, increasing inflation, and depreciation of the national currency accompany unplanned public debt accumulation, governments should be alert not to endanger economic growth with ill-considered borrowing. In this paper, we aim to analyze Iran’s external debt variations concerning major macroeconomic variables such as GDP growth as a proxy of economic growth, inflation, and sovereign oil generated incomes. The method that is applied in this research is cross wavelet transform which is a powerful mathematical approach for analyzing the financial data. Our results show there are different patterns in small and large scales between variables and external debt as a dependent variable has different relations with endogenous and exogenous factors. In the short run, low oil prices as an exogenous variable, during the 1980s have shaped governments’ debt accumulation behavior but on larger scales, indigenous variables such as governments’ budget deficits have been much more dominant in shaping governments borrowing patterns. In a chronological view, US cruel sanctions and the Iran-Iraq war were major events affecting sovereign borrowing behavior.

The devil is in the details: Capital stock estimation and aggregate productivity growth—An application to the Spanish economy

The variables that contribute to explaining the major puzzles and paradoxes in macroeconomics and economic growth literature always appear related, directly or indirectly, to capital stock and depreciation. Depreciation defined in a narrow sense refers only to physical wear and tear, but in a broader sense, it also includes economic deterioration and obsolescence. In this study, we explore the link between the two depreciation concepts of capital deepening and total factor productivity (TFP) growth. We propose a double growth accounting framework that allows us to establish a relationship between variables in statistical terms and variables in economic terms. Then, with Spanish data for 1964–2015, we first analyze the role played by capital intensity and TFP in explaining the evolution of labor productivity. The results are substantially different depending on whether we use statistical or economic measures of capital and depreciation. Second, we focus on the paradox of productivity, concluding that the apparent absence of a positive correlation between investment in information and communication technology and the TFP growth rate may be due to the delay effect associated with such investment combined with the statistical under-estimation of true economic depreciation.

Economic Depreciation of In-Woods Forestry Equipment in the US South

Abstract Forestry machines sold at auctions across the southern United States covering the years 2005 to 2019 (n = 640) were compiled into three equipment categories—rubber-tired feller bunchers, grapple skidders, and trailer-mounted loaders—with inflationary effects removed. The data were discounted by a reliability function derived from a two-parameter Weibull distribution, which defined the probability of future operability at machine hours h and a wrecking value based on each machine’s specified worth as scrap. These adjusted salvage values were then transformed using the Box-Cox normal method. Age affected all fellers and certain manufacturers of skidders and loaders. A significant annual use effect was revealed for fellers and skidders. Interactions of age and use with horsepower revealed that machine size influenced buyers’ feller and skidder purchasing decisions. Manufacturer intercept and slope shifters pointed to potential brand recognition by buyers. Perceived quality differences between manufacturers, however, were not revealed. Depreciation occurred at ever-increasing rates over machine lifetime.

Multivariate analysis of the conditions of temperature, moisture and storage time in the technological, chemical, nutritional parameters and phytochemical of green lentils

The aim of this study was to determine appropriate conditions of temperature and moisture during a storage period of several months in the technological, chemical, nutritional parameters and phytochemical of green lentils. For this the experimental design adopted was completely randomized in a split-split plot scheme, with three replications. In the main plot, temperatures (15, 25 and 35 °C) were allocated; in the split plot the moisture (10, 12 and 14%); and, in the split-split plot, storage times (0, 60, 120, 180, 240, 300 and 360 days). At the end of 360 days of storage, it was observed that the grains maintained appropriate quality parameters at 15 °C/10% (temperature/moisture), followed by 25 °C/10% and 25 °C/12%. The storage time was proportional to the stress suffered by the grain, because in the three longest storage times (240, 300 and 360 days) in the three moistures, was observed a higher content of simple and total phenols, tannins and anion capture action evaluated by DPPH, as well as, greater darkening and brown tint. Significant reduction in nutritional compounds such as protein and lipid was also observed with the increase in storage time at all temperatures and moisture. In this way, this research also makes a significant contribution to producers and industries, so that in practice they can have appropriate storage conditions, reducing the technological, nutritional and economic depreciation of the grain, opening the horizon for a market that still needs to be better explored.

The economic depreciation of real estate: Cross-sectional variations and their return implications

This study analyzes how real estate depreciates in economic value as it ages. The economic depreciation of real estate affects investment decisions by decreasing appreciation returns and increasing income returns. The data show significant cross-sectional variation in depreciation rates for residential and commercial real estate for Japan and residential real estate for the U.S. The depreciation rate is larger if a property is commercial, newer, denser, located in a smaller city, more distant from the central business district, and in Japan. The depreciation rate of structures is approximately 6% for Japanese housing, 10% for Japanese commercial structures, and 1% for the U.S. housing. This study also proposes new methods to correct for survivorship biases. These results serve as essential inputs for the analysis of real estate investment, consumer choice of housing, sustainability, and the macroeconomy.