NVA: A Value Addition Measure For Capital Project Evaluation

Corporate financial objective of stockholder wealth maximization and use of discounted cash flow methods for evaluation of capital projects are two of the well-accepted tenets of financial management. Present project evaluation methods, including the Net Present Value (NPV) technique, do not fully meet the stockholder wealth maximization criteria. This paper attempts to scrutinize the relevance of the NPV method in achieving the wealth maximization objective and suggests an alternative value addition measure, named Net Value Added (NVA). In the NPV method, all cash flows pertaining to a project are lumped together and discounted with one single rate, the weighted average cost of capital. The NVA method advocates that a project’s residual (net of its debt servicing) cash flows that belong to stockholders should be classified on the basis of their end-use, viz., equity servicing, capital maintenance, and value creating surplus cash flows.  As the risks associated with each of these three stockholders’ cash flows are not the same, they are separately discounted at appropriate rate depending upon the associated risk. Power of time (n) is assigned only to real risk-free rate of return and inflation premium to discount equity servicing and capital maintenance cash flows that are subject to exponential growth over time but not to the risk premium

Estimates of the Marginal Rate of Time Preference and Average Risk Aversion of Investors in Electric Utility Shares: 1960-66

This paper develops an econometric model of the valuation of electric utility shares. This model, based upon the Sharpe-Lintner capital market theory, yields indirect estimates of the marginal rate of time preference and average risk aversion of investors in electric utility shares during the period 1960-66. In general, the empirical findings are consistent with the Sharpe-Lintner positive theory of the valuation of risk assets. Investors are found to be risk averse, and the relationship between required return and standard deviation is found to be approximately linear within the range of the sample. From a normative perspective, these estimates of the marginal rate of time preference and risk aversion are shown to yield individual firm cost of capital estimates. In a prior study of the cost of capital to the electric utility industry, Miller and Modigliani assumed that electric utilities were homogeneous with respect to operating risk. The approach employed in the present study takes explicit cognizance of intra-industry differences in operating risk. That is, each firm is considered to be in a unique "risk class," and hence to have a unique marginal cost of equity capital.

IgE-Mediated Enhancement of CD4(+) T Cell Responses in Mice Requires Antigen Presentation by CD11c(+) Cells and Not by B Cells

IgE antibodies, administered to mice together with their specific antigen, enhance antibody and CD4(+) T cell responses to this antigen. The effect is dependent on the low affinity receptor for IgE, CD23, and the receptor must be expressed on B cells. In vitro, IgE-antigen complexes are endocytosed via CD23 on B cells, which subsequently present the antigen to CD4(+) T cells. This mechanism has been suggested to explain also IgE-mediated enhancement of immune responses in vivo. We recently found that CD23(+) B cells capture IgE-antigen complexes in peripheral blood and rapidly transport them to B cell follicles in the spleen. This provides an alternative explanation for the requirement for CD23(+) B cells. The aim of the present study was to determine whether B-cell mediated antigen presentation of IgE-antigen complexes explains the enhancing effect of IgE on immune responses in vivo. The ability of spleen cells, taken from mice 1-4 h after immunization with IgE-antigen, to present antigen to specific CD4(+) T cells was analyzed. Antigen presentation was intact when spleens were depleted of CD19(+) cells (i.e., primarily B cells) but was severely impaired after depletion of CD11c(+) cells (i.e., primarily dendritic cells). In agreement with this, the ability of IgE to enhance proliferation of CD4(+) T cells was abolished in CD11c-DTR mice conditionally depleted of CD11c(+) cells. Finally, the lack of IgE-mediated enhancemen of CD4(+) T cell responses in CD23(-/-) mice could be rescued by transfer of MHC-II-compatible as well as by MHC-II-incompatible CD23(+) B cells. These findings argue against the idea that IgE-mediated enhancement of specific CD4(+) T cell responses in vivo is caused by increased antigen presentation by B cells. A model where CD23(+) B cells act as antigen transporting cells, delivering antigen to CD11c(+) cells for presentation to T cells is consistent with available experimental data