70,271 research outputs found

    Optimal Technology Choice and Investment Timing: A Stochastic Model of Industrial Cogeneration vs. Heat-Only Production

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    In this paper we develop an economic model that explains the decision-making problem under uncertainty of an industrial firm that wants to invest in a process technology. More specifically, the decision is between making an irreversible investment in a combined heat-and-power production (cogeneration) system, or to invest in a conventional heat-only generation system (steam boiler) and to purchase all electricity from the grid. In our model we include the main economic and technical variables of the investment decision process. We also account for the risk and uncertainty inherent in volatile energy prices that can greatly affect the valuation of the investment project. The dynamic stochastic model presented allows us to simultaneously determine the optimal technology choice and investment timing. We apply the theoretical model and illustrate our main findings with a numerical example that is based on realistic cost values for industrial oil- or gas-fired cogeneration and heat-only generation in Switzerland. We also briefly discuss expected effects of a CO2 tax on the investment decision.Cogeneration, Irreversible investment, Risk, Uncertainty, Real options

    Optimal Capital Structure in Real Estate Investment: A Real Options Approach

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    This article employs a real options approach to investigate the determinants of an optimal capital structure in real estate investment. An investor has the option to delay the purchase of an income-producing property because the investor incurs sunk transaction costs and receives stochastic rental income. At the date of purchase, the investor also chooses a loan-to-value ratio, which balances the tax shield benefit against the cost of debt financing resulting from a higher borrowing rate and a lower rental income. An increase in the sunk cost or the risk of investment will not affect the financing decision, but will delay investment. An increase in the income tax rate or a decrease in the depreciation allowance will encourage borrowing and delay investment, while an increase in the penalty from borrowing, a decrease in the investor's required rate of return, or worse real estate performance through borrowing, will discourage borrowing and delay investment.Optimal Capital Structure; Real Estate Investment; Real Options; Transaction Costs

    Uncertainty and stepwise investment

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    We analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points. The presence of economies of scale gives rise to the following trade-off: lumpy investment has a lower total cost, but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage. Our main question is how uncertainty in market development affects this trade-off. The answer is unambiguous and in contrast with a conventional real-options intuition: higher uncertainty makes the single-stage investment more attractive relative to the more flexible stepwise investment strategy

    Housing Affordability Options for First Home Owner-Occupiers in Australia: A Simulation Analysis

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    This paper presents a simulation analysis of several policies, or policy proposals, for improving housing affordability for first home owner-occupiers in Australia: the First Home Owner Grant, housing equity partnerships and deposit loans. The focus is on the impact of these measures for housing demand, the private saving rate and house prices. The simulations apply a housing tenure choice model in which a representative adult household makes a lifetime plan concerning when to buy and sell a house, and the amount of housing and non-housing consumption over its adult lifetime. An insight from the lifecycle framework is that policies to improve housing affordability can have two effects on housing demand and house prices: a life-cycle timing effect and a liquidity effect; and it is possible that these effects will work in opposite directions on housing demand and therefore house pricHousing economics, household saving

    When to Sell or Hold a Stock:Empirical Evidence from an Emerging Market

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    Data from an emerging market were used to determine when to sell or hold a stock for a single model of a stock whose price is assumed to be a geometric Brownian motion in which the jump Markov process changes back and forth between positive and negative values

    Beyond promotion-based store switching: Antecedents and patterns of systematic multiple-store shopping.

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    In this paper, we demonstrate that single-purpose multiple store shopping is not only driven by opportunistic, promotion-based motivations, but may also be part of a longer term shopping planning process based on stable store characteristics. We find that consumers may systematically visit multiple stores to take advantage of two types of store complementarity. In the case of 'fixed cost complementarity', consumers alternate visits to high and low fixed cost stores to balance transaction and holding costs against acquisition costs. 'Category preference complementarity' occurs when different stores offer the best value for different product categories. Tying these multiple store shopping motivations to characteristics of grocery stores leads to interesting new insights into the nature of spatial retail competition.Category; Characteristics; Choice; Competition; Cost; Costs; Multiple store shopping; Patterns; Planning; Preference; Processes; Product; Spatial competition; Store choice; Value;

    INVESTMENT IN SITE SPECIFIC CROP MANAGEMENT UNDER UNCERTAINTY

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    This paper examines the impact of price uncertainty on farmers' adoption decision in site specific crop management using an option value model. It shows that price uncertainty could lead farmers to delay the investment 3 to 25 years as opposed to the net present value rule. Immediate investment is only worthwhile on high soil fertility and soil quality fields with high variability.Crop Production/Industries, Risk and Uncertainty,
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