Target Rate Of Return Research Articles

Semi-analytical model-based research on influencing factors of the spacing of volume fracturing horizontal well in tight oil reservoirs via consideration of imbibition

A mathematical model was established for porous flow of horizontal wells based on the dual-porosity model under consideration of imbibition, which was solved by means of a semi-analytical method to forecast production of multiple wells. Moreover, analysis was carried out to effects of production by those factors such as reservoir energy, abundance (the content of crude oil per unit area of the reservoir), brittleness (the property that the material will break after only producing a small deformation under the action of external force) and well spacing by taking Chang 7 reservoir of ChangQing(CQ) Oil Field (a typical tight oil region in China) as an example. On this basis, an optimal method for spacing of volume fracturing horizontal well in tight oil reservoir was formed under constraints of economic benefits. Our finding indicates that there would be no any optimal well spacing without considering constraints but those factors such as reservoir energy, abundance, brittleness would influence well spacing to bring about parameter optimization considering constraints. As for a complex fracturing area gathered near the wellbore whose reservoir energy, abundance and brittleness are higher, horizontal wells for volume fracturing of tight oil reservoirs shall be distributed in a small well spacing. Additionally, comparison of ChangQing and North American Bakken tight oil reservoirs indicates that the former has lower abundance, reservoir energy and brittleness. While the oil price is $60/barrel, the horizontal well is 1000m long and the well spacing is 400m, the target rate of return can be achievable in tight oil reservoir of CQ Oil Field. However, in case of considering the imbibition, the gain can be obtained while the well spacing is 300m. Our study for optimization of the horizontal well spacing for volume fracturing of tight oil reservoirs provides not only theoretical supports for the porous flow mechanism of tight oil reservoirs but also corresponding technical guidance for petroleum engineers when deploying well patterns.

Some Issues in the Sraffian View of Competition: Starting from Clifton

ABSTRACTThe article seeks to advance discussion about the nature of competition and of the ‘firm’ consistent with a classical-Sraffian perspective on relative prices and distribution. Discussion focuses primarily on the work of James Clifton published from the late 1970's. Clifton's insights have a direct bearing on issues at the heart of broader Sraffian research: how relative prices are anchored by the mobility of capital; whether the rate of profit should be interpreted as the exogenous distributive variable in the Sraffian price system; and, the forces which govern the ‘normal’ rate of profit, including the causal significance of the rate of growth. While Clifton's approach lends support to the interpretation of the rate of profit as a target rate of return, the article takes issue with Semmler's explanation as being endogenous to the price system. An alternative exogenous explanation of the target rate by reference to the rate of growth from Eichner is also considered, but rejected, despite the similarities between the insights of Clifton and Eichner into corporate pricing. Some useful implications from Clifton's analysis—as to the modeling of classical competition and gravitation—are also drawn out.

ОБМЕЖЕННЯ ОЦІНЮВАННЯ ЦІНИ АКЦІЙ КЛАСИЧНИМИ МЕТОДАМИ: КРИТИКА ЇХ НАДІЙСНОСТІ ТА ВПЛИВ ПОВЕДІНКОВИХ ФІНАНСІВ ОГРАНИЧЕНИЯ ОЦЕНКИ ЦЕНЫ АКЦИЙ КЛАССИЧЕСКИМИ МЕТОДАМИ: КРИТИКА ИХ НАДЕЖНОСТИ И ВЛИЯНИЕ ПОВЕДЕНЧЕСКИХ ФИНАНСОВ

When trying to figure out which valuation method to use to value a stock for the first time, most investors will quickly discover the overwhelming number of valuation techniques available to them today. There are the simple to use ones, such as the comparable method, and there are the more involved methods, such as the discounted cash flow model besides all of them have their own problems and limitations as well as impacted with behavioral finance. Companies have an intrinsic value, and that intrinsic value is based on the amount of free cash flow they can provide during their effective lifetime. Money later is worth less than money now, however, so future free cash flows have to be discounted at an appropriate rate. The theory behind most stock valuation methods is that the value of a business is equal to the sum value of all future free cash flows. All future cash flows are discounted due to the time value of money. If you objectively know all future cash flows of a company, and you have a target rate of return on your money, then you can know the exact amount of money you should pay for that company. Preparing the work, the following methods were used: Systematic analysis of the scientific literature; Comparative analysis; Systematization, comparison and summarizing of the results. Behavioral Finance in the theoretical plane based on a cumulative and develop the institutional framework and practical manifestations become increasingly important element-catalyst for the development of financial markets. Unfortunately, there is no one method that is best suited for every situation. Each stock is different, and each industry sector has unique properties that may require varying valuation approaches. In this article we structure and compare different methods, their strengths and weaknesses.

Comparison of Target Rates of Return in Latin American Mandatory Pension Systems for the Period 1997-2016

The aim of this work is to analyze which is the required average real return that Latin American workers need to obtain from their retirement funds, in order to get a reasonable pension at retirement, according to each system parameters; and to discuss if those required returns are feasible in the current economical context, or if any changes in the pensions designs are necessary. The results are that from the eight countries under analysis (Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Mexico, Peru and Uruguay), three do not reach a replacement rate of 70% or more (Dominican Republic, Mexico and Peru). Hence, in order to increase the replacement rate at an acceptable level in those countries, the actual rate of return on pension assets has to increase as much as 1.6 times, which seems unlikely at the current market conditions. Therefore, the compulsory pension systems of those countries should increase their contribution rate in 2 times from the actual level, with the purpose to provide an appropriate retirement to their members.

Capital Budgeting Practices in Nepal: A Survey

This study aimed at ascertaining the adequacy of financial resources for capital investment, financial objectives, qualitative factors, capital budgeting techniques, minimum return standard, and method of measuring the risk in the context of Nepalese enterprises. The study was based on questionnaire survey of 65 financial executives conducted in 2006. The study revealed that the majority of respondents did not have adequate resources for investment in fixed investment. The majority of the enterprises had plan to increase their investment in fixed assets. The major type of capital budgeting project was related to expanding plant capacity, followed by adding new product line, undertaking reorganization/modernization program, and undertaking replacement activities. It was observed that DCF methods, which were regarded as theoretically sound methods, did not reveal to be the most preferred methods of capital budgeting evaluation.As regards qualitative factors, the most important factor was legal factors while the least important factors were employee safety and morale. With respect to minimum required rate of return for the accept/reject criterion in capital budgeting evaluation, ‘management determined target rate of return’ was observed to be the most popular one. The weighted average cost of capital did not appear to be the most preferred standard.Concerning the cash flow forecasting methods in capital budgeting, the most preferred method was observed to be management’s subjective estimates. The quantitative methods were used less by Nepalese enterprises while estimating cash flows.The most preferred definition of risk in capital budgeting was observed to be the probability of not achieving target return. The majority of Nepalese respondents did not use any formal risk analysis technique. For those who were using risk analysis technique, the important methods were, shortening the payback period and raising required rate of return.

Transcending Home Bias: Institutional Innovation through Cooperation and Collaboration in the Context of Financial Instability

This paper sets out an analytical framework for understanding the nature and significance of cooperation and collaboration in beneficial financial institutions like pension funds and sovereign wealth funds. Recognising that these types of institutions rarely face competition for the flow of funds, it is also noted that these institutions and other types of financial institutions compete with one another to realise target rates of return in global financial markets. At one level, these institutions can be quite parochial, even if there is a premium on institutional innovation. It is argued that in-sourcing and/or outsourcing the production of target rates of return may not provide senior managers sufficient flexibility to respond to changing market conditions. In this respect, cooperation and collaboration between financial institutions can be seen as a way of opening-up an ‘action space’ for innovation otherwise denied by the norms and conventions of the sector. In the penultimate section of the paper, examples of cooperation and collaboration are described noting the ways in which they enable senior managers to transcend home bias (the hegemony of local practice). Implications are drawn as to the limits of cooperation and collaboration, especially as regards the authority of senior managers.

Proposed ‘Grant-And-Access’ Program With Price Caps Could Stimulate Development Of Drugs For Very Rare Diseases

The 1983 Orphan Drug Act created incentives for the development of orphan drugs. Despite its successes, including a substantial increase in new drugs, approved orphan drugs still treat fewer than 5 percent of registered rare diseases. In addition, concerns have arisen about the high prices of many of these therapies, which can cost hundreds of thousands of dollars per patient each year. In this article, we propose a new "grant-and-access pathway," in which drug developers could opt to compete for federal grants to subsidize the costs of clinical testing. In return for the grant funding, companies would no longer claim orphan drug tax credits and would agree to price caps for marketed products based on the duration and costs associated with drug development, expected market size, and target rate of return. We identify scenarios in which such a policy could provide a net benefit to society.

Higher moment portfolio management with downside risk

Variance is the common risk measure that has been used in portfolio optimization since the introduction of the mean-variance model. However, the mean-variance model penalizes not only the downside deviation but also the upside deviation. The upside deviation is desirable to the investors. The objective of this study is to compare the compositions and performances of optimal portfolios by replacing variance with lower partial moment. The lower partial moment is the downside risk that focuses on the deviation below the specified target rate of return which better matches investor's perception towards risk. Incorporating skewness, this study employs the polynomial goal programming method. This method is flexible to incorporate different degree of investor's preference for mean return and skewness. Skewness is important because increasing skewness reduces the probability of getting negative rates of return. The empirical results demonstrate that the optimal portfolios compositions base on lower partial moment are different to the optimal portfolios compositions based on variance. Furthermore, at the same level of downside risk, optimal portfolios that based on lower partial moment are found to give higher expected return and skewness than the optimal portfolios that are based on variance. This implies that the optimal portfolios that are based on lower partial moment dominate those based on variance at the same level of downside risk. Lower partial moment is a more appropriate risk measure for the investors because it only penalizes the downside deviation.

Bidding Strategies With Fuel Supply Uncertainty in Auctions of Long-Term Energy Call Options

This work develops a stochastic optimization model for the creation of a bidding strategy for a generator in an energy call option auction similar to Brazil's, i.e., where the bidder can offer both the premium and the strike price. The objective of the model is to maximize the bidder's competitiveness while ensuring that the project's target rate of return is achieved with a given probability, for example 95%. The problem's complexity is compounded by uncertainties in fuel supply and the need to switch between fuels. The generators face the conundrum of bidding a single strike price to cover the expenses generated by using multiple types of fuels. We address the problem of finding bidding strategies which, taking into account uncertainty in fuel supply and risk constraints, set the combination of strike price and option premium that ensure a desired risk-adjusted return for greenfield dual-fuel thermal plants.

Asset Allocation, Time Diversification and Portfolio Optimization for Retirement

Using the data of stock, commodity and bond indexes from 2002 to November 2010, this research was carried out by employing Bootstrapping Simulation technique to find an optimal portfolio (portfolio optimization) for retirement, and the effect of diversification based on increased length of investment period (time diversification) with respect to the lengths of retirement investment period and the amounts required for spending after retirement in various occasions. The study analyzed for an optimal allocation of common stock, commodity and government bond to achieve the target rate of return for retirement by minimizing the portfolio risk as measured from the standard deviation. Apart from the standard deviation of the rate of return of the investment portfolio, this study also viewed the risk based on the Value at Risk concept to study the downside risk of the investment portfolio for retirement.

Prudent Public Sector Investing and Modern Portfolio Theory: An Examination of Public Sector Defined Benefit Pension Plans

This research examines the extent to which public pension programs allocate assets in a manner that is consistent with an optimal portfolio, as defined by Modern Portfolio Theory (MPT). The examination is pursued by way of a statistical analysis, using a portfolio optimization model and data on some of the nation's largest public DB plans. The analysis illustrates that the majority of the plans in the sample are incurring far more risk in their portfolios than is optimal given their target rates of return and that this risk level is a result of nonprudent allocation across asset classes. The findings suggest that there might be opportunities to improve the long-term performance of defined benefit plans by adjusting asset allocation targets and legal lists in a manner that is more consistent with MPT.

Bond portfolio duration, cash flow dispersion and convexity

Immunization is a well-known fixed-income strategy to lock in a target rate of return over a known investment horizon. This is accomplished by structuring the bonds so that the duration of the portfolio matches the time horizon and then rebalancing the portfolio to maintain the match as time passes and yields change. The structural risk to the strategy can be measured by the cash flow dispersion or by the convexity of the immunizing portfolio. The general relationship between the duration, cash flow dispersion and convexity statistics for any date in the current period is derived in the article. Although both statistics measure the risk, convexity is significantly easier to implement in practice.

Using Life Extension-Duration and Life Extension-Convexity to Value Senior Life Settlement Contracts

Investments in senior life settlements are marketed as securities that are uncorrelated with assets traded on other markets such as real estate, commodities, corporate equities and risky debt. In this article the authors develop a metric that can be used to evaluate the sensitivity of the value of a life settlement contract and portfolios of life settlement contracts with respect to longevity risk. Longevity risk in the context of life settlement contracts is the possibility that a person covered by a life insurance policy lives longer than the purchaser of the policy has forecasted. A fund manager can sort policies by using the life expectancy duration and convexity metrics that are developed to select policies that will increase the likelihood that a fund of life settlement contracts attains its target rate of return. <b>TOPICS:</b>Wealth management, risk management, quantitative methods

The price cap plan for regulating local exchange carriers in the USA

In 1991, the FCC implemented a price cap plan designed to deal with the regulatory boundaries problem arising from the dissolution of AT&T in 1984. The experience with the price cap plan demonstrates the difficulty of predicting productivity growth accurately, and makes it clear that regulators cannot depend upon a pure price cap plan to keep prices within a reasonable range of cost. With periodic reviews to readjust plan parameters, however, a price cap plan can maintain rates of return close to the target rate of return, without diminishing the price cap plan's incentives for efficient production. A simple method of recalculating the X-factor based on the rates of return over the previous three years worked well in simulations. If this procedure had been used over the price cap period 1991 to 2000, prices would have been 20% lower, and expenditures on LECs' telecommunications services subject to price caps would have been $3.8 billion lower.

Capital Budgeting Practices: A Survey in the Firms in Cyprus

Introduction Cyprus is a small country with some special characteristics: first, its geographic position as it stands between east and west; and second, its eventual joining to the European Community. According to the Union of Industrial and Employers' Confederations of Europe (UNICE), Cyprus is expected to be ready to confront competition and pressures in the common market, since it is an important place of economic activities among Europe, North Africa, and the Middle East. To meet this competition and pressures successfully, Cyprus's businesses need imperatively today more than ever an increase in the volume of their investments and a readjustment of their investment policy. The need for a readjustment of their investment policy is the result of important differences that exist between the capital budgeting practices in Cyprus and those used in the United States (Cooper and Petry 1994; Gitman and Mercurio 1982; Kim and Farragher 1981; Schall 1978; Fama 1977; Fregren 1973; Klammer 1972) and other European countries. Specifically, most American and European firms use scientific evaluation methods (Vogt 1994; Pinches 1982; Perty 1975), whereas Cypriot firms use empirical ones. This may be explained by the fact that Cypriot entrepreneurs are reluctant to use new evaluation methods since they rely basically on the past and their experience. The purpose of this paper is to investigate (1) the methods used by the Cyprus companies to evaluate investments (the ones that are materialized); and (2) the approach adopted to handle important estimation problems inherent to the use of these methods, such as the definition and estimation of the cost of capital and the incorporation of risk analysis in the evaluation methods used (Woods and Randall 1989). More specifically, the second section of the paper focuses on the review of the literature associated with the use of capital budgeting techniques in practice. The third section explains the methodology used in the implementation of the survey. The fourth section gives a short summary of the profile of the sample companies. The fifth section presents and analyzes the results of the survey, and the last section of the paper presents conclusions and provides suggestions for further research. Review of Literature Gitman and Forrester (1977)'s research, based on a survey of 268 U.S. firms, found that the internal rate of return was the most popular technique at that time. This finding was supported by a similar survey conducted by Scott and Petty (1984) for large U.S. firms. The findings of this research were that the companies prefer the IRR method, with the payback period being a supplementary tool. As far as the discount rate used, they found that the primary one is a management-determined target rate of return followed by the weighted cost of capital. Academicians, as we all know, prefer the net present value (NPV) method for capital budgeting decisions. Practitioners, on the other hand, prefer the internal rate of return (IRR) method, as several other studies have revealed. For example, the study of Pan, Nichols, and Joy (1977) presented some evidence regarding the current state of the art of business sales forecasting practices. McDaniel, McCarty, and Jessell (1988), developed an alternative yield-based capital budgeting technique, the marginal return on invested capital (MRIC). This technique, the authors proved, can be applied more generally than other yield-based methods used as substitutes for the NPV technique. Porter (1992) stated that U.S. companies use hurdle rates that are higher than their estimated cost of capital for the evaluation of investment projects. Harris and Raviv (1996) studied the capital allocation process within firms. They constructed a model that incorporated managerial incentive problems and asymmetric information and showed that in an optimal capital budgeting process, the top manager specifies an initial limit for capital spending that can be upgraded after further examinations and audits. …

Risk and Return in the 20th and 21st Centuries

The single most important contemporary issue in finance is the equity risk premium. This drives future equity returns, and is the key determinant of the cost of capital. The risk premium – the expected reward for bearing the risk of investing in equities, rather than in low‐risk investments such as bills or bonds – is usually estimated from historical data. This article starts by summarising new evidence on historical returns in twelve major world markets from the authors' recent book, ‘The Millennium Book: A Century of Investment Returns’. The authors show that the historical equity risk premium has been lower than previously believed, and argue that the future risk premium is likely to be lower still. They discuss what this implies for the cost of capital, stock market values, and companies' target rates of return. They suggest that many companies are seeking too high a rate of return and thus run the risk of under‐investing.

A brokered market with heterogeneous suppliers and consumers

We consider a brokered market with heterogeneous suppliers and consumers of identical items or services. Each supplier determines a minimum acceptable price for the items it supplies, based on its costs and target rate of return. The broker begins with a fixed set of items from the suppliers. Customers arrive periodically to the market and offer a bid for an item. If a customer wants more than one item, a set of bids is made. If the broker accepts a bid it must be assigned an item with minimum accceptable price less than or equal to the bid, and the price paid is the bid price. The broker has the option of rejecting a bid. The broker makes acceptance and assignment decisions to maximize the total expected discounted revenue. We show the optimal policy has a simple threshold structure where thresholds can be easily determined by finding the individually optimal policies subject to priorities.

A brokered market with heterogeneous suppliers and consumers

We consider a brokered market with heterogeneous suppliers and consumers of identical items or services. Each supplier determines a minimum acceptable price for the items it supplies, based on its costs and target rate of return. The broker begins with a fixed set of items from the suppliers. Customers arrive periodically to the market and offer a bid for an item. If a customer wants more than one item, a set of bids is made. If the broker accepts a bid it must be assigned an item with minimum accceptable price less than or equal to the bid, and the price paid is the bid price. The broker has the option of rejecting a bid. The broker makes acceptance and assignment decisions to maximize the total expected discounted revenue. We show the optimal policy has a simple threshold structure where thresholds can be easily determined by finding the individually optimal policies subject to priorities.

A brokered market with heterogeneous suppliers and consumers

We consider a brokered market with heterogeneous suppliers and consumers of identical items or services. Each supplier determines a minimum acceptable price for the items it supplies, based on its costs and target rate of return. The broker begins with a fixed set of items from the suppliers. Customers arrive periodically to the market and offer a bid for an item. If a customer wants more than one item, a set of bids is made. If the broker accepts a bid it must be assigned an item with minimum accceptable price less than or equal to the bid, and the price paid is the bid price. The broker has the option of rejecting a bid. The broker makes acceptance and assignment decisions to maximize the total expected discounted revenue. We show the optimal policy has a simple threshold structure where thresholds can be easily determined by finding the individually optimal policies subject to priorities.

Disequilibrium Pricing and the Sraffa—Keynes Synthesis

Research over the last 10 to 15 years on the possibility of a Sraffa—Keynes synthesis has, in part, been concerned with clarifying the concept of a normal rate of capacity utilization, as well as its role in price determination and its interdependence with relative prices. This paper examines some of the key implications of the interdependence between the normal rate of capacity utilization and relative prices for disequilibrium pricing, specifically, target return pricing. In particular, the question arises as to consistency between the idea of a normal rate of utilization interpreted as a profit-maximizing choice by producers and the notion of a predetermined target rate of return. Interestingly, this issue of consistency raises the possibility that far from conceiving of the Post-Keynesian and Sraffian approaches to price theory as incompatible, they may instead be seen more appropriately as representing an alternatively short-run and long-run focus on the pricing decision. This view also carries with it implications about the role for demand and supply conditions in disequilibrium pricing, where this role takes the form of movements in demand relative to capacity within and between sectors affecting relative prices.