Real Internal Rate Of Return Research Articles

Financial, Economic, and Environmental Analyses of Upgrading Reverse Osmosis Plant Fed with Treated Wastewater

One of the most effective strategies to mitigate water shortages worldwide is to reuse treated wastewater for freshwater production employing reverse osmosis (RO) technology. This strategy is appropriate in urban areas of arid or semi-arid regions as it can provide a sustainable and reliable water source close to the consumers. One of the drawbacks of RO is the high variability of production costs due to the electricity intensity. In addition, depending on the electricity source, it can also result in substantial environmental costs. This study showed that upgrading pumping and RO membrane systems of a wastewater reuse plant in Cyprus can significantly alleviate these drawbacks in terms cost, water recovery rate, and air pollution. The water-recovery rate of the upgraded RO plant increased from 43.2 to 75 percent, which resulted in a substantial net financial benefit due to the reduction in the quantity of wastewater purchased and the increase in potable water produced. The upgraded system also reduced the electricity requirement from 3.63 kWh/m3 to 1.92 kWh/m3. Pollution emissions decreased substantially because of the reduction in electricity requirements. The beneficiaries of these lower emission costs are the residents of Cyprus and global society. Overall, the benefit of upgrading the plant is highly attractive with more than 65 percent annual real internal rates of return in financial and economic terms. Positive net present values are realized for all the scenarios considered.

Can grid-tied solar photovoltaics lead to residential heating electrification? A techno-economic case study in the midwestern U.S.

This study aims to quantify the techno-economic potential of using solar photovoltaics (PV) to support heat pumps (HP) towards the replacement of natural gas heating in a representative North American residence from a house owner’s point of view. For this purpose, simulations are performed on: (1) a residential natural gas-based heating system and grid electricity, (2) a residential natural gas-based heating system with PV to serve the electric load, (3) a residential HP system with grid electricity, and (4) a residential HP+PV system. Detailed descriptions are provided along with a comprehensive sensitivity analysis for identifying specific boundary conditions that enable lower total life cycle cost. The results show that under typical inflation conditions, the lifecycle cost of natural gas and reversable, air-source heat pumps are nearly identical, however the electricity rate structure makes PV costlier. With higher rates of inflation or lower PV capital costs, PV becomes a hedge against rising prices and encourages the adoption of HPs by also locking in both electricity and heating cost growth. The real internal rate of return for such prosumer technologies is 20x greater than a long-term certificate of deposit, which demonstrates the additional value PV and HP technologies offer prosumers over comparably secure investment vehicles while making substantive reductions in carbon emissions. Using the large volume of results generated, impacts on energy policy are discussed, including rebates, net-metering, and utility business models.

Comparative global timber investment costs, returns, and applications, 2020

We estimated stand level timber investment returns for a range of 16 countries and 47 planted species/management regimes in 2020, using capital budgeting criteria, at a real discount rate of 8%, without land costs. Plantation management financial returns were estimated for the principal plantation countries in the Americas—Brazil, Argentina, Uruguay, Chile, Colombia, Ecuador, Paraguay, Mexico, and the United States—as well as for China, Vietnam, Laos, Spain, New Zealand, Finland, and Poland. South American, New Zealand, and Spain plantation growth rates and their concomitant investment returns were generally greater, with the exception of some pulpwood regimes, with real Internal Rates of Return (IRRs) of more than 11%. Southeast Asia had the highest timber prices and highest calculated stand-level IRRs in the world, at more than 20%. Temperate forest plantations in the U.S. and Europe returned less, from 3% to 7%, but those countries have less financial risk, better timber markets, and more infrastructure. These timberland benchmarking research efforts can be used by the private sector for considering timber investments in different countries and regions in the world, or by government and nongovernment organizations to estimate their management costs and returns, or for providing government incentives for the provision of ecosystem services such as forest carbon storage.

Micro-economic assessment of residential PV and battery systems: The underrated role of financial and fiscal aspects

The German Federal Government, in order to achieve its renewable energy targets, has promoted the deployment of solar PV. Small residential PV installations coupled with battery energy storage systems are gaining momentum, as the appeal of self-consumption has grown. We conducted an economic analysis to assess the profitability and optimal configuration of these technologies from the perspective of heterogeneous households that are subject to the current German regulatory framework. In this regard, we consider heterogeneous potential for the self-consumption of electricity (e.g. household size, energy efficiency), as well as heterogeneous financial (i.e. metrics, parameters, sources of financing) and fiscal (i.e. tax treatment, tax rate) aspects. We find that the use of alternative financial metrics (i.e. payback period, real internal rate of return and net present value) as criteria for evaluating profitability has a significant impact on the rankings of system configurations. Furthermore, fiscal aspects are crucial to assessing profitability and marginally relevant for optimal system configuration, while financial aspects are of great importance for both. Our results on optimal battery coupling (as opposed to stand-alone PV) show that rates of adoption range between 0% and 94% of the analyzed load profiles, following the variation of such finance-related dimensions (e.g. discount rates, inflation, debt versus equity financing). We conclude that such findings on the impact of such factors are highly relevant in terms of designing cost-efficient and effective policies that aim to foster energy transitions, both in Germany and elsewhere, especially at a time of very low interest rates.

Critique of 'Analytical Framework for Examining the Value of Antibacterial Products'

In 2014 the Eastern Research Group, under contract with The U.S. Department of Health and Human Services, produced a study entitled “Analytical Framework for Examining the Value of Antibacterial Products.” The study (ERG) concludes that there is a wide gulf between an Antibiotic (AB) development project’s value to the developer and its value to society, and that it is likely therefore that many socially desirable AB development projects are not undertaken. I argue in this paper that ERG’s estimates are seriously flawed and offer no support to the contention that governments should do more to promote the development of ABs. After correcting for some conceptual errors, I find that ERG’s assumptions imply that the private real internal rates of return on the six AB development projects they consider vary between 11.9 percent and 20.6 percent and all exceed ERG’s assumed real cost of capital for the pharmaceutical industry. Moreover, I find that ERG greatly overstates the social value of the AB development projects for several reasons, two of which stand out. First, the social discount rate employed is unjustifiably lower than the assumed private discount rate. And, second, ERG assumes the social value of treatment with a new innovative AB is equal to its gross treatment value less the value of a treatment with “commonly-prescribed ABs” despite the fact that not-commonly-prescribed innovative ABs already exist that treat virtually all pathogens currently in existence.

An exploratory analysis of the scope for dispersed small-scale irrigation developments to enhance the productivity of northern beef cattle enterprises

The major economic use of the northern Australian rangelands is beef cattle grazing. Beef production enterprises are typically large and employ ‘low-input’ herd and pasture management systems, and the longer-term viability and sustainability of many is uncertain. Productivity gains have been stagnant for most of the past decade, and nutritional constraints are a major source of the poor animal production and financial returns across the sector. There has been a growing interest in the scope for small-scale, dispersed irrigation developments – mosaic irrigation – to provide an augmented supply of higher-quality forages to certain classes of animals in order to alter their reproduction and/or growth potential and to exploit market opportunities. An ex-ante economic review undertaken by the CSIRO of the prospects for mosaic irrigation employed bioeconomic simulation modelling of case studies of irrigation development scenarios conducted at the individual beef enterprise scale in three contrasting regions of northern Australia – the Burdekin (north Queensland), the Barkly Tableland (Northern Territory) and the Kimberley (northern Western Australia). This paper presents a summary of the methods, results and conclusions of the case study modelling. The results present a mixed picture of the economic potential for the various irrigation development options that were canvassed. The level of animal productivity (e.g. average weight of sale animals) increased for all of the irrigation simulation scenarios, but in most instances the projected economic advantage ranged from negative to only moderately positive across the three regional case studies. Where there was an apparently attractive return on the irrigation investment (e.g. a real internal rate of return of >15%), this primarily occurred under the more buoyant market conditions that have prevailed in recent years. The influence of irrigated forage availability on herd structure through management options such as the early weaning of calves appears to be at least as valuable as changes in liveweight gain for particular classes of animals.

The effects of recent Spanish pension reforms on sustainability and pension adequacy

ABSTRACTThe Spanish pension system has been recently reformed as a response to the demographic challenge and with the objective of ensuring the sustainability of the pension system in the long-term. The overall reforms include changes in the majority of the system parameters, a new indexation rule and a sustainability factor that links life expectancy and the first pension amount. The aim of this work is to analyse how these reforms affect two important features of a pension system: fiscal sustainability and adequacy. For this purpose, the real internal rate of return (IRR) of the lifetime contributions and benefits and the prospective gross theoretical replacement rate (TRR), both before and after the reforms, have been computed. The calculations are case-study based, for a few hypothetical workers who are sufficiently representative of the earnings and retirement patterns in Spain. The results show that the real IRR is 0.7 p.p. lower and the prospective gross TRR is 18 p.p. lower after the reform process for the base case of a man with an uninterrupted career of 40 years with average earnings and a retirement age of 65. In addition, pension reform process in Spain has different effects among the individuals depending on the gender, level of earnings, retirement age and career length.

The Economic Returns to U.S. Public Agricultural Research

We use newly constructed state‐specific data to explore the implications of common modeling choices for measures of research returns. Our results indicate that state‐to‐state spillover effects are important, that the research and development lag is longer than many studies have allowed, and that misspecification can give rise to significant biases. Across states, the average of the own‐state benefit‐cost ratios is 21:1, or 32:1 when the spillover benefits to other states are included. These ratios correspond to real internal rates of return of 9% or 10% per annum, much smaller than those typically reported in the literature, partly because we have corrected for a methodological flaw in computing rates of return.

Oil Sands Royalties and Taxes in Alberta: An Assessment of Key Developments since the mid-1990s

This paper examines oil sands royalty and tax systems that have either been proposed or implemented since the mid-1990s. Simulation models of oil sands production projects are constructed and the distribution of ex ante economic rents for various assumed crude oil price paths is calculated. The results suggest that until 2007 changes in royalties and taxes had been favorable to producers. The pattern of estimated real internal rates of return obtained through the simulations supports this conclusion. The recommendations of the provincially appointed Royalty Review Panel were anchored in the view that Alberta’s oil sands industry had matured since the mid-1990s and that a distribution of ex ante rents more favorable to Albertans, as owners of the resource, was thus warranted. In contrast, the changes proposed by the Government of Alberta in 2007 would effectively return the distribution of ex ante rents to what prevailed a decade earlier. However, the role of royalties (as opposed to corporate income tax) as means of capturing rents for governments is more important under the proposals made in 2007.

What is a Promise from the Government Worth? Quantifying Political Risk in State and Personal Pension Schemes in the United Kingdom

There are three key types of political risk facing pension schemes: those induced by demographic, economic, and pure political factors. The state scheme in the United Kingdom has been susceptible to all three types since 1980, with the result that the annual real internal rate of return on the second‐pillar state pension for the average male worker fell from 5.1% to 1.5% over 25 years. The flat‐rate, first‐pillar Basic State Pension has also experienced a fall in its IRR of 3 percentage points as a result of the indexation basis changing from earnings to prices.

A Different Perspective on Using Multiple Internal Rates of Return: The IRR Parity Technique

This article presents a technique for determining project acceptability and for rank ordering two mutually exclusive projects when multiple internal rates of return are present. This method is consistent with the net present value approach. In focusing on the even or odd parity of the number of real internal rates of return that are greater than the cost of capital, this method is shown to have generality and simplicity. This article also compares the proposed technique with the relevant internal rate of return approach defined in the recent literature.

THE RATE OF RETURN ON R&D IN THE SOUTH AFRICAN SUGAR INDUSTRY, 1925–2001

The rate of return (ROR) on R&D in the South African Sugar Industry is estimated from a Ridge Regression of a production function of time series data for the period 1925 to 2001. The Industry has kept records on R&D expenditure, yields, rainfall and related factors over a 75-year period. Sugar cane yield was measured in tons sucrose to account for quality improvement. In this function, R&D expenditure lagged three years was significant (t = 6.5) in explaining increased sucrose production per ha. Other highly significant variables in this model were rainfall (t = 5.2) and real cost of production (t = 8.4). A dummy interaction with R&D was significant (t = 2.9) implying a greater impact for R&D technology during the period 1959 to 1975 than either before or after this period. The standardised regression model indicated that the R&D variable was one of the most important variables in explaining yield. Using the elasticity of production estimate for the R&D variable of the un-standardised model, a Benefit/Cost ratio for this variable of 1.41 was estimated, if benefit of millers is excluded and 1.59, if the gain to millers is included. In the latter estimates, the exports realisation price of sugar was used as the appropriate shadow price. A real internal rate of return was estimated at 17%. A unique feature of the South African Sugar Industry is that research is privately funded by the industry, which implies that the distortionary impact of taxes need not be accounted for, as is the case with public funded research.

THE RELEVANT INTERNAL RATE OF RETURN

In this article we present a method for determining project acceptability in the presence of multiple internal rates of return. An internal rate of return is an interest rate that equates the present worth of a cash flow stream to zero. When unique, it provides valuable information about the return on the investment and is often viewed as a measure of efficiency. Unfortunately, this analysis is clouded when there are multiple internal rates of return, which can occur when a project is defined by a mixture of positive and negative cash flows. While many methods have been presented in the literature to deal with this problem, we believe ours to be unique in that it does not rely on the computation of another measure of worth, but rather, the identification of the relevant rate of return from the set of internal rates of return. We show that this rate always produces decisions consistent with present worth under the assumption that at least one real internal rate of return exists. In doing so, we provide new definitions of when a project is borrowing from, or loaning to, the firm. These definitions help in understanding the meaning of multiple internal rates of return, which is also discussed.

Tree Size Diversity and Economic Returns in Uneven-Aged Forest Stands

Abstract Methods are presented to predict some of the effects of management on the tree size diversity of forest stands, measured with the Shannon-Wiener index applied to diameters. The diameter distribution is an indicator of stand structure and a determinant of biological diversity. The methods, which involve linear and nonlinear programming models of managed stands, were applied to northern hardwood forests. The attendant stand growth model was calibrated and validated with remeasured plots. The results suggest that, in this specific case, a natural, undisturbed stand would reach the highest possible sustainable diversity of tree size. Any intervention would decrease that diversity. In particular, economic harvesting policies would reduce tree size diversity by 10 to 20%, depending on the length of the cutting cycle. However, economics and diversity did not necessarily conflict. With the data and model used here, lengthening the cutting cycle up to 30 yr led to higher tree size diversity, while it also increased the soil rent of a stand by decreasing the present value of the cost of re-entry. Similarly, for a given cutting cycle, the soil rent increased with tree size diversity up to about 90% of the sustainable maximum, but decreased sharply thereafter. Real internal rates of return of 2 to 4% could be earned with stands that had either mediocre or very good levels of diversity. Likewise, starting from the same initial stand state, proper choice of a cutting guide could lead to much higher levels of tree size diversity, without decreasing forest value. For. Sci. 40(1):83-103.

RETURNS PAID TO EARLY SOCIAL SECURITY COHORTS

Previous research generally concludes that early participants in the Social Security system received a very good “deal”—better than later participants received, and much better than future participants are likely to get. However, researchers do not know the values of those deals and their distribution across individuals and groups largely because the necessary data have not been available. The study here uses the Social Security Administration's 1988 Continuous Work History Sample (CWHS) to calculate early participants' real internal rates of return to contributions. The study analyzes sex, race, household type, income, and birth cohorts and employs new Census Bureau mortality projects to forecast more accurately how life expectancies and benefit streams vary by race as well as by sex and birth cohort. Results contribute to an understanding of how the Social Security system redistributes income. All sample groups received high real rates of return. However, the returns varied widely by household type, income level, birth cohort, and other factors. The authors calculate that persons born from 1895 to 1922 received a total transfer of £3.5 trillion, of which £1.3 trillion remained to be paid as of 1988.

Determining Optimal Financial Rotations under Inflationary Conditions

SYNOPSIS Various financial and quasi-financial criteria used or proposed to solve rotation problems, such as Net Present Value, Land Expectation Value, Net Present Value for an infinite series of rotations, Benefit-Cost Ratio, Profitability Index, Real Internal Rate of Return, Maximum Turnover, Forest Rent and Financial Maturity are discussed and analysed. A number of additional financial criteria not yet applied to rotation determination, such as Net Terminal Value, Nominal Internal Rate of Return, Real Internal Rate of Return for an infinite series of rotations and Equivalent Annual Income are considered as well. The efficiency of all of these is judged by their sensitivity as rotation criteria to changes in the financial environment caused by inflation and changing technology. Equivalent Annual Income is recommended as the most appropriate criterion for the selection of optimal financial rotations in a dynamic financial environment.

Financial Returns from Fertilizing 70-year-old Lodgepole Pine near Hinton, Alberta

Fertilizing 70-year-old lodgepole pine stands 10 years before rotation on Coalspur Mercoal soils in Alberta increased wood yield and reduced logging costs. Real internal rates of return were over 10% for some treatments, making them an attractive investment on both soil types. Present net worth and profitability index were used to identify the most profitable treatment. Key words: Forest fertilization, lodgepole pine, returns from fertilization, profitability, investments in lodgepole pine, management of lodgepole pine, cost-effectiveness of fertilization, fertilization of preharvest lodgepole pine.

Cost Efficiency of Pruning Black Hills Ponderosa Pine

Abstract Trees pruned in stands of ponderosa pine (Pinus ponderosa) managed at several growing stock levels were used to determine the number of years for pruning wounds to heal. The mean time for pruning wounds to heal was 11 years. Costs and returns from pruning the butt log of trees to be retained to final harvest were analyzed. Pruning to a height of 8.5 ft cost $0.58 per tree; pruning to a height of 17.5 ft cost $1.78 per tree. Trees pruned to 17.5 ft for production of clear grades of lumber in 16-ft lengths would earn real internal rates of return ranging from 7.8 to 14.0% for several stand conditions and management regimes. Trees pruned to a height of 8.5 ft, to produce 8-ft lumber, earned IRRs somewhat higher, 8.6 to 16.1%. Outcomes are best on productive sites if pruning costs are kept low and if high-valued products are anticipated. West. J. Appl. For. 3(1):10-14, January 1988.

SOCIAL SECURITY: A FINANCIAL APPRAISAL ACROSS AND WITHIN GENERATIONS

This paper computes the expected present value of Social Security retirement benefits and taxes for households of different marital circumstances, incomes, and age cohorts. Also computed are the net gain or loss from participation in the system, the expected internal rate of return it offers various participants, and the marginal linkage between benefits and contributions. All computations are made for the 1985 Social Security and income tax laws. The general results are that Social Security offers vastly different terms to households in different circumstances. The net gain or loss varies by $ 200,000 and the real internal rate of return on contributions ranges from negative numbers to 6.3 percent for households of different ages, income levels, and marital status. These differences are far greater than the widely debated distributional effects of relevant income tax alternatives. We also find that there is a great deal of variance in the marginal linkage of benefits and taxes with most households facing a situation where the incremental present value of benefits is only zero to thirty cents per extra dollar of taxes paid.

A closer look at the returns and risks of pharmaceutical R&D

This study assesses the profitability of researching and developing new chemical entities (NCEs). A 36 year investment horizon is projected, based on a survey of R&D costs and on extensive U.S. sales data. Analysis is after taxes. The average NCE produces a real internal rate of return of 6.1% and a net present value of $76 million in 1976 dollars. Break even with an opportunity investment in corporate bonds occurs on average after 12 years of sales. Risk is apparent in that after 24 years of sales some two-thirds of NCEs return no more than the bonds do. The median NCE, not recovering average R&D costs, produces a negative return. Alternative assumptions are tested. Results are highly sensitive to drug price increases and early replacement by generics.