19 research outputs found
Operational asset replacement strategy : a real options approach
Get PDFThis article analyses the problem of replacement by investigating the optimal moment of investment replacement in a given tax environment with a given depreciation policy. An operation and maintenance cost minimization model, based on the definition of equivalent annual cost, is applied to a real options paradigm. The developed methodology allows for an innovative evaluation of the flexibility of replacement process analysis. A new two- factor evaluation function is introduced to quantify decisions of asset replacement under a unique cycle environment. This study improves upon previous findings in the literature as it accounts for autonomous salvage value processes. Based on partial differential equations, this model achieves a general analytical solution and particular numerical solution. The results differ significantly from those observed in one-factor models by showing evidence of over-evaluation in optimal levels of replacement, and by confirming suspicions that different types of uncertainties produce non-monotonous effects on the optimal replacement level. The scientific contribution of this study lies in new and stronger approaches to equivalent annual cost literature, supplying an algorithm for operation and maintenance cost minimization that is conditioned by autonomous salvage value. This study also contributes to the real options literature by developing of a two-factor model with Brownian processes applied to asset replacement.info:eu-repo/semantics/publishedVersio
The Ease of Doing Business Index as a tool for Investment location decisions
Get PDFThe Ease of Doing Business Index (EDBI) uses 41 variables to compare the business environment of different countries. It is widely used by policy makers, researchers and multinational companies. This paper aims to assess EDBI’s consistency and validity in representing the business environment by using factor analysis. It is found that the EDBI presents a limited consistency and descriptive power of a country’s business environment. The consequence of these findings is that multinational firms should handle carefully the EDBI in their investment decisions.Location Decisions, Factor Analysis, Cross-Border Investments, Institutional Environment
Analysis of the asset replacement level with an uncertain salvage value : a two-factor model
Get PDFThe aim of this article is to analyse the asset replacement problem from the perspective of optimal replacement level, given a specific tax environment and depreciation policy. Using a real options approach, our model minimizes current operation and maintenance costs and allows the definition of a new value of the replacement flexibility within a multi-cycle environment. The innovation on the valuation process comes from adding an autonomous salvage value’s factor. The results from partial differential equations reveal relevant differences from those observed in one-factor models, especially with regard to optimal replacement levels and in the non-monotonous effects of salvage value variation. The numerical case study also confirms that the salvage value is indeed a worthwhile element in the replacement process. It was possible to determine that, in terms of the magnitude of the cost replacement level, the key roles are played by changes in the speed of mean reversion, as well in the salvage factor volatility. This paper provides some improvements to the existing literature in equivalent annual cost by drawing up a cost minimization problem conditioned by a different salvage value dynamics, and contributes to real options literature by introducing a salvage value factor in the pricing model.info:eu-repo/semantics/publishedVersio
Engineering economics: lecture notes
Get PDFThis publication presents theoretical concepts and pratical tools necessary to develop investments appraisal, used to support capital budgeting decisions. It also provides investment criteria to select among different investment projects under several economic environments and distinct time horizons.info:eu-repo/semantics/publishedVersio
Management control: lecture notes
Get PDFThe main purpose of this book is to present a mainly financial, but also economic, view of the functioning of organizations, with theoretical and conceptual basis for the practice of financial project analysis capable of sustaining investment decisions and increasing the value of organizations. It also intends to able practitioners to use their practical need toward informed financial decisions in a range of engineering areas: mechanical, civil, industrial or manufacturing, among others.info:eu-repo/semantics/publishedVersio
