Theory of investment

Franco Modigliani and Merton H. Miller, The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review 48 (1958), pp. 261-297. 

Regardless of whether most of the groundwork is developed by employees or contractors, effective PSM initiatives are company-driven, not imposed from outside the company. Effective implementation relies on a sense of investment among the people who ultimately will put theory into practice. 

It is important to understand the quantitative theory of rNPV, because it provides insight into the elements that contribute to a positive investment decision. In the case of biotech, two components of a technology strategy usually overshadow all other variables, the sales potential and the risk of failure. 

Such was the state of the art when Amundson and Bilous s paper was published in the first volume of the newly founded A.I.CH.E. Journal (Bilous and Amundson, 1955). This for the first time treated the reactor as a dynamical system and, using Lyapounov s method of linearization, gave a pair of algebraic conditions for local stability. One of these corresponded to the slope condition of previous analyses, and there was a brief flurry of attempts to invest the other with a similarly physical explanation. For the global picture they introduced the phase plane (another feature of the theory of dynamical systems) and, with consummate skill, Bilous conjured the now classic figures from a Reeves electronic analogue computer. Even in this early paper, they had touched upon the consecutive reaction scheme A - B - C and had shown that up to five steady states might be expected under some conditions. 

Part IV of this chapter will present the elementary theory of Second-Law cost accounting and its application to several practical cases, showing its usefulness for (i) costing "energy" commodities, (ii) plant operation decisions, and (iii) plant designs — new and retro-fit. These methods can be used to prescribe efficiencies and investments, traded-off against each other, but they will yield truly optimal results only to the extent that the real value (cost) of the "energy" supply is known. 

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