Marginal rate of return

Analysis on a national level and per social group Another and more precise approximation to the net aggregate consumption benefits of the project takes into account the adjustments necessary when the social value of funds devoted to investments exceed the social value of the same funds devoted to consumption. This is the case when the government has not been in a position to raise savings - and investment - to the point where the marginal rate of return on investment, q, is equal to the social rate of discount, i. If 100 units consumed now is considered equivalent to 110 units consumed the next year, the social rate of discount i is 10%. A unit of money withdrawn from consumption to an investment now should have a rate of return of at least i in order to increase the consumption in future years to the desired level. 

Implied forward rates indicate the expected short-term (one-period) future interest rate for a specific point along the term structure they reflect the spread on the marginal rate of return that the market requires if it is investing in debt instruments of longer and longer maturities. 

Fig. 3. Profitabihty diagram for Venture A. (a) Simple diagram. NRR is net return rate IRR, the internal rate of return, is a given fixed point, (b) Three NRR cutoff lines for Venture A where B, C, and D represent NRR values of 15, 10, and 5%/yr, respectively. For example, at a discount rate of 10% per year, the NRR cutoff for Venture A could be as high as 10.74% per year for marginal acceptance (point X). Acceptable levels are to the left of NRR cutoff...

Absorption, rate-of-return, and marginal pricing have been considered here on the basis of manufacturing cost. Total cost, which is the sum of manufacturing and general costs, can also be considered as the basis. In this case the appropriate profit to consider is the net annual profit rather than the gross annual profit. 

Kremer16 then went on to make a precise estimate of the social value of an innovation or surplus under a situation of competition and under a monopoly. Thus, for example, for a price five times higher than the price fixed according to the marginal price, we detect a static distortion of 1.5, that is, the social rate of return of an innovation in a situation with marginal cost prices will be 1.5 times the return on the investment under monopoly prices. In this situation the social value of an innovation in a competitive environment would be 9.35 times the social value in a monopoly, that is, when there is no welfare loss. Kremer thus provides an estimate of welfare loss from a more thorough analytical perspective, and shows that it can be sizeable. 

If the IRR is equal to the designated rate of return, the investment is marginal. 

Marginal-, average cost-, and rate of return - tariff... 

The sum of these discounted NCEs over the life of the project is the project s net present worth. The project with the highest positive net present worth would be the one selected. The discount rate used in Eq. (18.5) is the firm s marginal acceptable rate of return (MARR) for anticipated projects or its hurdle rate. Note that the discount rate is expressed on an after-tax basis to be consistent with the NCF. Also, when comparing projects via the present worth method, all projects must have equal... 

Both the new and expanded plants would have an estimated life of 20 years. The firm s hurdle rate (marginal acceptable rate of return) is 12.5% (before tax), and its marginal state and federal corporate income tax rate is 52%. Assuming straight-line depreciation (with zero salvage) and that 100% of the investment is depreciable, calculate the net present worth of each project. 

Impossibility, of obtaining such data for innovations that were not carried out should be obvious.) But a limited amount of evidence can perhaps be derived on this score from the data concerning the 17 Innovations. For 9 of these innovations, we could obtain data concerning the approximate private rate of return expected from the innovation by the innovator when it began the project. In 5 of the 9 cases, this expected private rate of return was less than 15 percent (before teuces), which indicates that these 5 projects were quite marginal from the point of view of the firm, (indeed, the executives of the firms confirmed that they were marginal.) yet the average social rate of return of these 5 innovations was over 100 percent. 

Some analysts advocate adjusting the minimum attractive rate of return to compensate for risky investments, suggesting that, since the future is uncertain, stipulation of a minimum attractive rate of return of, say, i + Ai wUl ensure that i wUl be earned in the long run. Since some investments will not turn out as well as expected, they wUl be compensated for by the incremental safety margin, A . This approach, however, fails to come to grips with the risk or uncertainty associated with estimates for specific alternatives, and thus an element Ai in the minimum attractive rate of return penalizes all alternatives equally. 

Rather than building a safety margin into a single minimum attractive rate of return, some firms establish several risk classes with separate standards for each class. For example, a firm may require low-risk investments to yield at least 15% and medium-risk investments to yield at least 20%, and it may define a minimum attractive rate of return of 25% for high-risk proposals. The analyst then... 

We also followed the approach in Chapter 3 of adding a payment representing fixed costs so the marginal firm earns only a normal rate of return in long-run equilibrium. The value we selected for fixed cost, c, causes the marginal employer to have a value for p, denoted equal to 0.1. Thus, the initial values observed for p. range from 0.1 to 1. 

Revenue neutrality Several studies have indicated that the costs of emission pricing policies are minimized if any government revenue from these pohcies (in the form of a tax or revenue from auctioning emission allowances) is returned to the consumers in the form of a reduction in the marginal rates of pre-existing income or sales taxes. 

Humans have always used the environment as a source of resources. However, for a lengthy period of time their activity did not markedly affect the biosphere. Only in the late 19th century did changes in the biosphere induced by human activity drop on human civilization like a ton of bricks. Trying to improve living standards and profit margins, humans continue to step up the rate of material production without little regard for the consequences (Tables 2.2-2.6). With such an approach, most of the resources taken from nature return to nature as waste, often poisonous or unfit for utilization. This threatens the existence of both the biosphere and humankind (Moiseev, 1990 Schwarzenbach, 2002). 

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