Investment Rate Of Return Research Articles

An economic order quantity model for deteriorating items with partially permissible delay in payments linked to order quantity

To attract more sales suppliers frequently offer a permissible delay in payments if the retailer orders more than or equal to a predetermined quantity W. In this paper, we generalize [Goyal, S.K., 1985. EOQ under conditions of permissible delay in payments. Journal of the Operational Research Society 36, 335–338] economic order quantity (EOQ) model with permissible delay in payment to reflect the following real-world situations: (1) the retailer’s selling price per unit is significantly higher than unit purchase price, (2) the interest rate charged by a bank is not necessarily higher than the retailer’s investment return rate, (3) many items such as fruits and vegetables deteriorate continuously, and (4) the supplier may offer a partial permissible delay in payments even if the order quantity is less than W. We then establish the proper mathematical model, and derive several theoretical results to determine the optimal solution under various situations and use two approaches to solve this complex inventory problem. Finally, a numerical example is given to illustrate the theoretical results.

Szacowanie wewnętrznej stopy zwrotu inwestycji w wyższe wykształcenie

Szacowanie wewnętrznej stopy zwrotu inwestycji w wyższe wykształcenie

The Risk Adjustment of Required Rate of Return for Supply Chain Infrastructure Investments

Abstract The purpose of this article is to apply a risk-adjusted required rate of return to evaluate supply chain capital investments. As part of the design methodology, a computer simulation provides expected cash flows resulting from alternative supply chain investments. These cash flows are discounted at a risk-adjusted required rate of return. The analysis represents a process to measure the risk inherent in supply chain investments. The logistics and supply chain literature has not addressed this problem of the risk inherent in a specific supply chain project. A corporate-wide hurdle rate applied to usually conservative supply chain investments may result in less than adequate investments in supply chain infrastructure. Prior studies have determined risk-adjusted required rate of return for the entire firm, an enterprise's entire supply chain network, but not an individual project within the supply chain. This study calculates a required rate of return for a specific supply chain investment project using a discrete simulation model rather than the more common mathematical model. Individual supply chain investment projects may have less risk or possibly more risk than reflected by a corporate hurdle rate or a supply chain hurdle rate. Using a standard required rate of return could result in too little or too much investment in supply chain facilities. In this study, when the risk-adjusted rate was employed to discount expected cash flows, only two of eleven alternatives evaluated were acceptable investments. The best investment with the highest return was a 12 percent increase in ship loading rate combined with a 33 percent increase in rail unloading capacity. It provided a benefit-cost ratio of 1.25. The limited availability of publicly traded firms that invest in supply chain projects represents a constraint, limiting the accuracy of estimating the market risk factor. Nevertheless, the practical implication is that, when making supply chain infrastructure investment decisions, it is advisable to adjust risk factors in evaluating such capital investments. This approach is preferable to using a corporate-wide hurdle rate, typically too high for such conservative investments. A firm-wide hurdle rate might result in under investment in supply chain facilities.

The Risk Adjustment of Required Rate of Return for Supply Chain Infrastructure Investments

Abstract The purpose of this article is to apply a risk-adjusted required rate of return to evaluate supply chain capital investments. As part of the design methodology, a computer simulation provides expected cash flows resulting from alternative supply chain investments. These cash flows are discounted at a risk-adjusted required rate of return. The analysis represents a process to measure the risk inherent in supply chain investments. The logistics and supply chain literature has not addressed this problem of the risk inherent in a specific supply chain project. A corporate-wide hurdle rate applied to usually conservative supply chain investments may result in less than adequate investments in supply chain infrastructure. Prior studies have determined risk-adjusted required rate of return for the entire firm, an enterprise's entire supply chain network, but not an individual project within the supply chain. This study calculates a required rate of return for a specific supply chain investment project using a discrete simulation model rather than the more common mathematical model. Individual supply chain investment projects may have less risk or possibly more risk than reflected by a corporate hurdle rate or a supply chain hurdle rate. Using a standard required rate of return could result in too little or too much investment in supply chain facilities. In this study, when the risk-adjusted rate was employed to discount expected cash flows, only two of eleven alternatives evaluated were acceptable investments. The best investment with the highest return was a 12 percent increase in ship loading rate combined with a 33 percent increase in rail unloading capacity. It provided a benefit-cost ratio of 1.25. The limited availability of publicly traded firms that invest in supply chain projects represents a constraint, limiting the accuracy of estimating the market risk factor. Nevertheless, the practical implication is that, when making supply chain infrastructure investment decisions, it is advisable to adjust risk factors in evaluating such capital investments. This approach is preferable to using a corporate-wide hurdle rate, typically too high for such conservative investments. A firm-wide hurdle rate might result in under investment in supply chain facilities.

Retailer's optimal ordering policies with trade credit financing

In this article, we extended Goyal's model to develop an Economic Order Quantity (EOQ) model in which the supplier offers the retailer the permissible delay period M, and the retailer in turn provides the trade credit period N (with N ≤ M) to his/her customers. In addition, we assume that (1) the retailer's selling price per unit is necessarily higher than its unit cost, and (2) the interest rate charged by a supplier or a bank is not necessarily higher than the retailer's investment return rate. We then establish an appropriate EOQ model with trade credit financing, and provide an easy-to-use closed-form solution to the problem. Furthermore, we find it is possible that a well-established buyer may order a lower quantity and take the benefit of the permissible delay more frequently, which contradicts to the result by the previous researchers. Finally, we perform some sensitivity analyses to illustrate the theoretical results and obtain some managerial results.

Optimal manufacturer's pricing and lot‐sizing policies under trade credit financing

AbstractIn this paper, we extend Goyal's economic order quantity (EOQ) model to allow for the following four important facts: (1) the manufacturer's selling price per unit is necessarily higher than its unit cost, (2) the interest rate charged by a bank is not necessarily higher than the manufacturer's investment return rate, (3) the demand rate is a downward‐sloping function of the price, and (4) an economic production quantity (EPQ) model is a generalized EOQ model. We then establish an appropriate EPQ model accordingly, in which the manufacturer receives the supplier trade credit and provides the customer trade credit simultaneously. As a result, the proposed model is in a general framework that includes numerous previous models as special cases. Furthermore, we provide an easy‐to‐use closed‐form optimal solution to the problem for any given price. Finally, we develop an algorithm for the manufacturer to determine its optimal price and lot size simultaneously.

Is Investment Performance of GRA can Evaluate Profitability for Life Insurers in Taiwan?

Financial insolvency for life insurers should impact the financial button line and even incur high social costs. The main profit of life insurers in Taiwan almost depend on investment performance. Thus, to evaluate efficiency of investment performance, and to explore the financial standing are very important. However, it is necessary to study the correlation between GRA and investment return rate because many studies adopted GRA to assess financial performance of firm. One of Results show there are significant differences for GRA among different group of OD and FB life insurers. The investment performance is also existed variation from 2001 to 2004.

RAISING CAPITAL FOR MICROFINANCE: SOURCES OF FUNDING AND OPPORTUNITIES FOR EQUITY FINANCING

On a worldwide basis, microfinance institutions (MFIs) provide financial services to the poorest households. To date, funding of MFI activities has come primarily from outright donor grants, government subsidies, and often debt capital, including debt with non-market terms favorable to the MFI. These traditional sources of MFI financing may not be sufficient to allow MFIs to provide maximum services. There is a subset of the pool of mainstream equity investors who would consider investing in MFI opportunities, even knowing that they would not expect to earn the full economic rate of return that such investments would otherwise require. However, as part of their investment evaluation process, these investors would ask: What would the market determined required expected rate of return for my MFI investment be? What return on investment (ROI) do I expect to earn on my MFI investment? Is the difference in the above two returns acceptable given my level of social motivation? How will I "monetize" my investment and when? The purpose of this article is to employ modern corporate finance techniques to address these questions.

Is There a Future for the Not-for-Profit Hospital?

The issue of the future of the not-for-profit hospital is not one of not for profit versus investor owned, but of economic viability. A shift toward business practices in the not-for-profit hospital is occurring and may help explain why few studies have been able to show distinctive differences between not-for-profit and investor-owned hospitals. Although the system is set up to give not for profits special privileges for promoting a societal common good, a gradual erosion of those privileges has blurred the distinction between the two types of entities. With a process I call "competitive advantage incrementalism," investor-owned hospitals chip away at the privileges afforded their tax-exempt competitors. At the same time, the not-for-profit hospitals increasingly adopt the successful practices of the business world, and are guided by board members and executives who hold to a big-business view of healthcare. What is the future for the not-for-profit hospital? They must continue to exist, although they can expect increasing operating burdens to continue as not for profits. They and investor-owned facilities become progressively more similar in operations and structure. The not-for-profit institutions must prove that they produce a community benefit to justify not-for-profit status. That is a heavier burden than merely producing a high rate of return for investors.

Optimal pension funding dynamics over infinite control horizon when stochastic rates of return are stationary

We follow up our earlier work [Insurance: Math. Econ. 15, (1994) 151–162], which introduced the methods of finite control optimisation to the problem of pension funding for a defined benefit pension scheme, where valuations are carried out on a short-term, winding-up valuation basis. The model involves a linear stochastic dynamic system with a quadratic optimisation criterion (i.e. an LQP problem), and the solution is based on optimal control theory. The current paper extends this work by deriving, in relation to a long-term, going-concern valuation basis, optimal funding control procedures over an infinite control horizon, making use of the monotone convergence property of the dynamic programming algorithm. The stochastic inputs modelled are the investment rates of return and benefit outgoes, both of which are assumed to be stationary. As a result, we believe that the optimal funding policy derived could provide a stationary long-term guideline for the funding of public employees’ pension systems.

Efficient Gain and Loss Amortization and Optimal Funding in Pension Plans

The authors consider efficient methods of amortizing actuarial gains and losses in defined-benefit pension plans. In the context of a simple model where asset gains and losses emerge as a consequence of random (independent and identically distributed) rates of investment return, it has been shown that direct amortization of such gains and losses leads to more variable funding levels and contribution rates, compared with an indirect and proportional form of amortization that “spreads” the gains and losses. Stochastic simulations are performed and they indicate that spreading remains more efficient than amortization with simple AR(1) and MA(1) rates of return. Similar results are obtained when a more comprehensive actuarial stochastic investment model (which includes economic wage inflation) is simulated. Proportional spreading is rationalized as the contribution control that optimizes mean square deviations in the contributions and fund levels when the funding process is Markovian and the fund is invested in two assets (a random risky and a risk-free asset). Efficient spreading and amortization periods are suggested for the United States, the United Kingdom, and Canada.

Exponential smoothing methods in pension funding

'Smoothed-market' methods are used by actuaries, when they value pension plan assets, in order to dampen the volatility in contribution rates recommended to plan sponsors. A method involving exponential smoothing is considered. The dynamics of the pension funding process is investigated in the context of a simple model where asset gains and losses emerge as a result of random rates of investment return and where the gains and losses are spread. It is shown that smoothing market values up to a point does improve the stability of contributions but excessive smoothing is inefficient. It is also shown that consideration should be given to the combined effect of the asset valuation and gain and loss adjustment methods. Practical and efficient combinations of gain/loss spreading periods and asset value smoothing parameters are suggested.

Legal Institutions, Corporate Governance and Aggregate Activity: Theory and Evidence

This paper investigates the interaction between legal institutions and financial arrangements and the effects that these have on corporate decisions and aggregate activity, both theoretically and empirically. We develop a two country general equilibrium model with overlapping generations and asymmetric information in the credit market. We show that, at the steady state equilibrium, firms located in the country providing tighter legal enforcement to the creditors' rights receive a larger amount of external finance at a lower price and have a larger size. While these results rationalize some recent empirical evidence in the corporate finance literature, we obtain a new result for the leverage ratio that we show to be independent of the quality of legal institutions (i.e. it is the same across firms located in the two countries). At the aggregate level, we show that countries with higher creditors' protection enjoy a larger aggregate output level and a bigger capital stock. The driving force behind our results is that improvements in the legal protection of creditor rights to repossess a collateral asset, increase the investment rate of return, by tempering the inefficiencies due to asymmetric information. In the empirical part, we provide evidence that confirms our theoretical predictions by using new data sets at firm and regional level for Spain and Italy. Unlike the already existing literature, we proxy the degree of legal enforcement by using statistical information on the performance of judicial districts, i.e. measures based on the number of backlogs, the number of concluded trials and the average length of trials.

What is an Acceptable Rate of Return for an Undiversified Investor?

The valuation of illiquid or non-marketable assets is complicated by the fact that the discount rate cannot be computed by using the risk attributes of the asset along with market parameters. Rather, individual attitudes toward risk affect the discount rate. Some recent research has avoided this difficulty by adopting an cost approach, arguing that an undiversified holder of a risky asset will require at least the return that they could have earned by leveraging the market portfolio to achieve the same level of risk. We evaluate this claim in a model with an explicit utility function. It turns out not to be true that the opportunity cost necessarily understates the required rate of return unless we also restrict the holder of an illiquid asset to invest all her liquid wealth in the market portfolio. When the holder can also invest in a riskless asset, the opportunity cost method actually overstates the required rate of return for investors with sufficiently low risk-aversion. In general, however, the opportunity cost approach provides a reasonable approximation to the exact required rate of return over a wide range of risk-aversion levels provided the investor can also borrow and lend.

Herbicide Hardwood Crop Tree Release in Central West Virginia

Abstract Chemical crop tree release treatments were applied to young hardwood stands at three sites in central West Virginia to evaluate the effectiveness of glyphosate as Accord (41.5% SL), imazapyr as Arsenal AC (53.1% SL) and Chopper (27.6% EC), and triclopyr as Garlon 3A (44.4% triethylamine salt SL), and Garlon 4 (61.6% butoxyethyl ester EC) using hack-and-squirt injection and low volume stem bark band application methods. American beech (Fagus grandifolia Ehrh.) was a major competitor to black cherry (Prunus serotina Ehrh.) crop trees at each site. The treatments were applied in June and evaluated 12 months after treatment. A numerical rating system ranging from 1 to 7 (0–100% crown affected), which utilized visual symptoms, was used to evaluate the efficacy of each treatment. Trees receiving a rating of 5 (75% crown control) or greater were considered controlled.After 12 months, almost complete control (99+%) was achieved with the Accord, Garlon 3A, and Arsenal AC injection treatments across all study sites. The low volume stem bark band treatments used in this study were not effective. The imazapyr treatments adversely affected several crop trees and are not recommended for hardwood crop tree release. Some crop tree damage was inflicted by the Accord treatments, but when suggested guidelines are followed, Accord is recommended for crop tree release treatments. No crop tree damage was observed in the Garlon 3A treatments. The costs of the injection treatments expressed in dollars/ft2 of basal area controlled were as follows: Accord ($0.91), Garlon 3A ($1.04), and Arsenal AC ($0.84). The Northeast Decision Model Stand Inventory Processor using the NE-TWIGS growth simulator was used to predict the future composition and value of projected stands. The stem injection treatments more than doubled projected growth of black cherry basal area. Real rates of return for investment in weed tree control averaged 8.77% for stem injection treatments. This study indicates that chemical crop tree release treatments using stem injection with label recommended solutions of Accord or Garlon 3A are an effective way to increase the future value of Appalachian hardwood stands. North. J. Appl. For. 18(2):46–54.

Pension Fund Dynamics and Gains/Losses Due to Random Rates of Investment Return

A simple model for defined benefit pension plans with independent and identically distributed rates of investment return and a stationary membership is considered. Three methods of adjusting the normal cost as gains or losses arise are compared, and a suitable choice of amortization or spread period is made. We also investigate the evolution in time of the first and second moments of the pension fund and contribution levels.

094015 (M40) A short note on Arma (1,1) investment rates of return and pension funding : Wong C.F.W., Haberman S.,Actuarial Research Paper N o97, Department of Actuarial Science and Statistics, City University, UK, 1997

094015 (M40) A short note on Arma (1,1) investment rates of return and pension funding : Wong C.F.W., Haberman S.,Actuarial Research Paper N o97, Department of Actuarial Science and Statistics, City University, UK, 1997

Stochastic investment returns and contribution rate risk in a defined benefit pension scheme

We consider the “contribution rate risk” for defined benefit occupational pension schemes, and compare different approaches to funding from the viewpoint of minimising the variability in the present value of future contributions as a means of controlling this type of risk to the scheme's sponsor. This leads to a discussion of which periods for spreading valuation surpluses and deficiencies should be chosen to minimise this measure of risk. The underlying model of investment returns used is that real rates of investment return are independent and identically distributed.

Pension funding: The effect of changing the frequency of valuations

We consider a mathematical model of the financial structure of a defined benefit occupational pension scheme and investigate the variability of pension contributions and fund levels in the presence of independent and identically distributed investment returns. In particular, we consider the specific cases of annual and triennial valuations and compare the optimal spread periods (for amortizing valuation surpluses and deficiencies) and the relative limiting variances of the pension contributions and fund levels. For non-negative expected real rates of investment return, it is found that the optimal spread period is marginally increased when we move from annual valuations to triennial valuations (from M * to M 1 *). For values of M less than M 2 * ≅ M 1 * it is found that the relative limiting variances of both contributions and fund levels are increased in the triennial valuation case relative to the annual case. The results are then generalized to the case where valuations are every n years (where n is an integer).

Pension funding with time delays and autoregressive rates of investment return

We consider pension funding methods which determine contributions at each valuation by spreading the unfunded liability over a fixed number of years. Real rates of return on the assets are assumed to be represented by a first-order autoregressive process. The contribution rate is fixed relative to the fund level but with a time delay. This means that the fund level and contribution rate have the structure of a non-linear time series, where an autoregressive component is multiplied by the autoregressive rate of return. Recursive formulae are obtained for the expectations and the variability of fund and contribution levels for finite t. Under certain conditions, these moments converge in time to limits which, although not explicitly obtainable, can nevertheless be found by a numerical procedure in any given case.