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Article
Publication date: 4 November 2013

Dulat Tubetov, Syster Christin Maart-Noelck and Oliver Musshoff

The purposes of the study are to compare the investment behavior of farmers in Kazakhstan as a transforming country and in Germany as a Western industrialized country as well as…

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Abstract

Purpose

The purposes of the study are to compare the investment behavior of farmers in Kazakhstan as a transforming country and in Germany as a Western industrialized country as well as to analyze whether the investment behavior of farmers is consistent with the normative benchmarks of the net present value approach or the real options (RO) approach.

Design/methodology/approach

The paper conducted an experiment with 100 Kazakhstani and 106 German farmers. The first part of the experiment describes an investment opportunity in an agricultural and in a non-agricultural treatment. The second part refers to a Holt and Laury lottery to determine farmers' risk attitude that could influence the investment behavior.

Findings

The results show that both approaches do not provide an exact prediction of the investment behavior of farmers. However, German farmers invest later than Kazakhstani farmers meaning that the investment behavior of German farmers is closer to the RO approach. This might imply that German farmers are more likely to take into account the value of flexibility when making investment decisions than Kazakhstani farmers.

Research limitations/implications

Since investment behavior is country-specific, it is worth investigating whether farmers from other transforming countries would show different investment behavior compared to farmers from other Western industrialized countries. Furthermore, decision-making behavior related to investments could be different from that related to disinvestments. Therefore, it may be interesting to analyze the disinvestment decisions of farmers in transforming and Western industrialized countries.

Practical implications

The results show that it is not acceptable to apply the results of experiments investigating the investment behavior of entrepreneurs in a transforming country to entrepreneurs in a Western industrialized country and vice versa. Furthermore, training for farmers is needed because there is still room for improvement in order to achieve the RO benchmark. Finally, taking into account RO effects could improve the results of policy impact analysis.

Originality/value

This is the first experimental study comparing the investment behavior of farmers from a transforming country and from a Western industrialized country.

Details

Agricultural Finance Review, vol. 73 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 27 September 2021

Stephen Gray, Jason Hall, Grant Pollard and Damien Cannavan

In the context of public-private partnerships (PPPs), it has been argued that the standard valuation framework produces a paradox whereby government appears to be made better off…

Abstract

Purpose

In the context of public-private partnerships (PPPs), it has been argued that the standard valuation framework produces a paradox whereby government appears to be made better off by taking on more systematic risk. This has led to a range of approaches being applied in practice, none of which are consistent with the standard valuation approach. The purpose of this paper is to demonstrate that these approaches are flawed and unnecessary.

Design/methodology/approach

The authors step through the proposed alternative valuation approaches and demonstrate their inconsistencies and illogical outcomes, using theory, logic and mathematical proof.

Findings

In this paper, the authors demonstrate that the proposed (alternative) approaches suffer from internal inconsistencies and produce illogical outcomes in some cases. The authors also show that there is no problem with the current accepted theory and that the apparent paradox is not the result of a deficiency in the current theory but is rather caused by its misapplication in practice. In particular, the authors show that the systematic risk of cash flows is frequently mis-estimated, and the correction of this error solves the apparent paradox.

Practical implications

Over the past 20 years, PPP activity around the globe amounts to many billions of dollars. Decisions on major infrastructure funding are of enormous social and economic importance.

Originality/value

To the best of the authors’ knowledge, this study is the first to demonstrate the flaws and internal inconsistencies with proposed valuation framework alternatives for the purposes of evaluating PPPs.

Details

Accounting Research Journal, vol. 34 no. 6
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 1 February 1993

Richard Dobbins

Sees the objective of teaching financial management to be to helpmanagers and potential managers to make sensible investment andfinancing decisions. Acknowledges that financial…

6362

Abstract

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

Details

Management Decision, vol. 31 no. 2
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 16 March 2010

Valerie G. Caryer Cook and Ahad Ali

This paper aims to propose the use of net present value methods to derive the quality costs of quality improvement projects. The proposed methodology is then demonstrated in a…

4079

Abstract

Purpose

This paper aims to propose the use of net present value methods to derive the quality costs of quality improvement projects. The proposed methodology is then demonstrated in a case study of a quality improvement to an inspection process in an automobile assembly plant.

Design/methodology/approach

The approach takes the form of application of accounting net present value methods to the cost of quality methods.

Findings

Quality improvements in the manufacture of durable goods do not usually have instantaneous results in warranty cost reductions, customer satisfaction or revenue expansion. The net present value method proposed gives a more accurate accounting of the expected results of quality improvement projects by considering the temporal effects of the change and the time value of money.

Research limitations/implications

The case study presented contains fictitious data to protect the confidentiality of the source. While it is useful in demonstrating the application of the net present value method, it should not be used as an indication of actual costs of plant operations.

Originality/value

The paper provides a unique approach to cost of quality analysis that is particularly useful in the assessment of quality improvement projects for durable goods. While much research is focused on cost of quality methods and philosophies, only a little provides the level of detail in the actual application of the methods found in the case study.

Details

International Journal of Quality & Reliability Management, vol. 27 no. 3
Type: Research Article
ISSN: 0265-671X

Keywords

Article
Publication date: 1 August 1994

Piet Sercu and Raman Uppal

Typically, international capital budgeting is carried out using the adjusted net present value (NPV) approach. In this article, we present an alternate method for valuing

Abstract

Typically, international capital budgeting is carried out using the adjusted net present value (NPV) approach. In this article, we present an alternate method for valuing international investments; one that is based on the option pricing theory developed by Black and Scholes (1973). We show that when (a) the decision being valued involves an irreversible investment, (b) the investment decision can be postponed, and (c) uncertainty is resolved gradually over time, using the option pricing approach may be more appropriate than the NPV approach. Applying the traditional NPV approach to value investments such as the decision to enter a new market, expand production, suspend operations temporarily or liquidate operations, may lead one to underestimate their value. This is because the naive NPV criteria is a static valuation method that ignores a firm's flexibility to postpone projects, to abandon them, or to shut down operations temporarily.

Details

Managerial Finance, vol. 20 no. 8
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 February 2004

J. Stuart Wood and Gordon Leitch

Proposed projects whose financing will cause capital structure to change across time cannot be accurately evaluated by the ordinary Weighted Average Cost of Capital‐Net Present

3216

Abstract

Proposed projects whose financing will cause capital structure to change across time cannot be accurately evaluated by the ordinary Weighted Average Cost of Capital‐Net Present Value technique. The required rate of return on a new project depends on the firm’s capital structure through the effect of capital structure on the required rates of debt and equity suppliers. But the capital structure depends on these required rates, which are themselves functions of capital structure. There is no general analytical solution to this circularity, so the ordinary weighted average cost of capital cannot capture the effects of changing capital structure on the cost of capital, and the computed NPV is not correct: the wealth of the shareholders will change by a different amount, and may have a different sign as well.

Details

Managerial Finance, vol. 30 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 September 1997

George E. Pinches and Diane M. Lander

Interviews in South Korea, Taiwan, Singapore, and India indicate net present value (NPV) is not widely employed in making capital investment decisions in these newly…

Abstract

Interviews in South Korea, Taiwan, Singapore, and India indicate net present value (NPV) is not widely employed in making capital investment decisions in these newly industrialized and developing countries. It is not from lack of knowledge about net present value: rather, it is due to (1) widespread violation of the assumptions underlying NPV, (2) the high risk/high return nature of the capital investments, and (3) the decision‐making process employed in making capital investment decisions. These same three conditions exist for many capital investment decisions made by firms in developed countries. Only by abandoning the static NPV approach, building in real options, and understanding and building in the decision‐making process will further advances be made in capital budgeting decision‐making. One of the key paradigms in finance is net present value (NPV). In order to maximize value, managers should accept all positive NPV investment projects, and reject all negative NPV projects. The issue becomes more complex when uncertainty is introduced, or, as in recent years, when real options to defer, abandon, expand, etc. are incorporated into the decision‐making process [e.g., Dixit and Pindyck (1994) and Trigeorgis (1995 and 1996)]. However, with these exceptions, the state of the art in capital investment decision‐making revolves around the simple statement—take all positive NPV projects. In practice, evidence from surveys and discussions with corporate executives indicates the message taught for the last 30 years in business schools has been heard and, to a large extent, acted upon by larger U.S., Canadian, and British‐based firms. While larger firms in North America, and to a lesser extent Western Europe, generally employ the static, or traditional, NPV framework for making, or assisting in making, capital investment decisions, less is known about the decision‐making process employed by firms in other parts of the world. The question addressed in this study is: “Do firms in other parts of the world, especially in newly industrialized or developing countries in the Asia Pacific region, employ NPV for making capital investment decisions?” The purposes of this study are threefold: (1) to report the results of a series of open‐ended interviews conducted in South Korea, Taiwan, Singapore, and India about the capital investment decision‐making process employed; (2) to understand why NPV is not widely employed in making capital investment decisions in these newly industrialized and developing countries; and, most important, (3) to indicate that NPV and the capital budgeting decision‐making process need rethinking and refocusing to make them more effective—in all countries, whether developed, newly industrialized, or developing. The paper proceeds in the following manner. Section I provides an introduction to the study. In Section II the results of the interviews are presented. In Section III patterns that emerged during the interview process are presented, along with a number of specific examples of the types of capital investment decisions being considered. In Section IV the assumptions underlying NPV are examined, and then risk/return and the decision‐making process are considered. Section V contains the discussion and conclusions.

Details

Managerial Finance, vol. 23 no. 9
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 January 1996

Laurence Booth

Academic research has made remarkable contributions to our knowledge as to how capital markets behave. This research has in turn stimulated changes in the practise of finance…

Abstract

Academic research has made remarkable contributions to our knowledge as to how capital markets behave. This research has in turn stimulated changes in the practise of finance. From the seminal contributions of Markowitz (1952) and subsequently Sharpe (1964) we have learnt how diversification affects the risk of holding securities. This has stimulated practical innovations in index funds, risk and style based bench‐marking of portfolio performance as well as more precise methods for estimating capital costs. From the contributions of Black and Scholes (1973) we have also learnt how financial and real options can be valued. This in turn provided the necessary condition for the development of the huge market in derivative securities. Who could have issued LYONS, Nikkei puts, bull floaters and caps and collars if Black and Scholes had not first made the key insight that you could value these securities indirectly by creating a risk free portfolio? Finally, from Jensen and Meckling (1976) we have rediscovered the problems of incentive structures, and the importance of “agency” problems. This in turn has stimulated significant changes in the design of financial securities, such as event risk clauses in bonds, to protect against corporate opportunism, as well as providing the intellectual motivation behind the dramatic developments in management and leveraged buyouts. The above developments have been recognised in two Nobel prizes with most probably more to come.

Details

Managerial Finance, vol. 22 no. 1
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 11 July 2016

Salah Eddin Murad and Salah Dowaji

Cloud Computing has become a more promising technology with potential opportunities, through reducing the high cost of running the traditional business applications and by leading…

Abstract

Purpose

Cloud Computing has become a more promising technology with potential opportunities, through reducing the high cost of running the traditional business applications and by leading to new business models. Nonetheless, this technology is fraught with many challenges. From a Software as a Service (SaaS) provider perspective, deployment choices are one of the major perplexing issues in determining the degree to which the application owners’ objectives are met while considering their customers’ targets. The purpose of this paper is to present a new model that allows the service owner to optimize the resources selection based on defined metrics when responding to many customers’ with various priorities.

Design/methodology/approach

More than 65 academic papers have been collected, a short list of the most related 35 papers have been reviewed, in addition to assessing the functionality of major cloud systems. A potential set of techniques has been investigated to determine the most appropriate ones. Moreover, a new model has been built and a study of different simulation platforms has been conducted.

Findings

The findings demonstrate that serving many SaaS customer requests, with different agreements and expected outcomes, would have mutual influence that impact the overall provider objectives. Furthermore, this paper investigates how tagging those customers with various priorities, with reflection of their importance to the provider, permits controlling and aligning the selection of computing resources as per the current objectives and defined priorities.

Research limitations/implications

This study provides researchers with a useful literature, which can assist them in relevant subject. Additionally, it uses a value-based approach and particle swarm technique to model and solve the optimization of the computing resource selection, considering different business objectives for both stakeholders, providers and customers. This study derives priority of a number of factors, by which service providers can make strong and adaptive decisions.

Practical implications

The paper includes implications on how the SaaS service provider can make decisions to select the needed virtual machines type driven by his own preferences.

Originality/value

This paper rests on the usage of Particle Swarm Optimization technique to optimize the business value of the service provider, as well as the usage of value-based approach. This will help model that value in order to combine the total profit of the provider and the customer satisfaction, based on the agreed budget and processing time requested by the customer. Another additional approach has been charted by using the customer severity factor that allows the provider to reflect the customer importance while making the placement decision.

Details

Journal of Enterprise Information Management, vol. 29 no. 4
Type: Research Article
ISSN: 1741-0398

Keywords

Article
Publication date: 1 February 1988

Edward M. Miller

Textbooks often portray capital budgeting as a rather mechanical process: Top management decides whether or not to accept a project by requesting an estimate of net present value

Abstract

Textbooks often portray capital budgeting as a rather mechanical process: Top management decides whether or not to accept a project by requesting an estimate of net present value from its staff and to see if the number is positive or negative. This paper suggests that the textbook net present value rule is not optimal if the competitive market assumption holds. Better decision rules state minimum acceptable safety margins and may take the form of stating a minimum acceptable profitability ratio.

Details

Managerial Finance, vol. 14 no. 2/3
Type: Research Article
ISSN: 0307-4358

1 – 10 of over 291000