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The Engineering Economist is a journal that focuses on data-driven engineering economic models to support capital investment decisions in uncertain economic conditions. The latest issue features articles on various topics. The first article introduces a project valuation framework that incorporates Economic Value Added (EVA) and Market Value Added (MVA) analysis into a binomial tree option pricing model. The second article merges earlier work on valuation and growth expectations with the Average Internal Rate of Return (AIRR) models, simplifying calculations for expected competitive advantage and growth rates. The third article utilizes real options analysis to assess uncertainty in the copper concentrate trading business. The journal publishes original research, case studies, surveys, and reviews related to capital investment problems. [Extracted from the article]

Does the rate of return from the Chinese real estate industry correlate with the intensity of competition among real estate firms? If China’s equity market performs efficiently, the rates of return of real estate firms should vary indirectly with their level of monopoly power. Greater monopoly power reduces earnings risk and leads to lower costs of capital. The authors analyze empirical evidence and indicate no relationship exists between returns and competition. Speculation may induce stock prices to deviate from normal values. Because normal values assume no speculation, Chinese markets are not likely to be economically efficient. [ABSTRACT FROM PUBLISHER]

Firms that invest into positive net present value projects should outperform firms that do not invest. Surprisingly, several studies on United States data have found a negative relationship between capital investment and subsequent shareholder return. There are conflicting explanations for this negative relationship. The present study also confirmed a significant negative relationship between capital investment and subsequent shareholder returns in the South African developing market conditions. Over the period from 1992 to 2017, shares on the Johannesburg Stock Exchange with lower investment rates consistently outperformed shares with higher investment rates, exhibiting similar behaviour to the US. We find that the negative investment return is significantly associated to the firm’s book-to-market value consistent to the rational-based q-theory of investment with real options explanation. [ABSTRACT FROM AUTHOR]

A pure investment is defined here as any transaction where the invested capital is nonnegative at all times during the life of the transaction. This article proves that any transaction whose first non-zero term is negative can be uniquely partitioned into pure investments with strictly decreasing internal rates of return (IRRs). The IRRs of the partitioning transactions put bounds on the IRRs of the original transaction. The partitioning theorem gives a simple characterisation of Arrow/Levhari's results on the optimal truncation of a transaction. The partitioning theorem also has applications to the problem of the optimal time for an investor to sell the remaining terms in a transaction. [ABSTRACT FROM AUTHOR]

Sydney Water's water network consists of about 21,000 km of water mains. Sydney Water is a statutory state owned corporation, with the Independent Pricing and Regulatory Tribunal as the economic regulator. Sydney Water has developed a comprehensive set of decision frameworks and business processes to manage the life cycle of water main assets to achieve a desired level of service and financial return within an acceptable risk. With the current constrained financial and economic environment, affordability is the most pressing issue in the water industry as customers are seeking value for money. It is requiring the water industry to reduce capital investment programs and deliver more with less while maintaining or improving customer satisfaction. This paper presents the analysis of the asset performances and customer expectations against the level of services and explains how Sydney Water explores the opportunities to build the level of services and customer value into its asset management strategy and decision framework to optimise the capital investment programs. [ABSTRACT FROM AUTHOR]

With the globalization of the economy, more and more companies have made and will continue to make project investment abroad. This paper discusses a multinational project adjustment and selection problem in which project parameters are regarded as random variables. Special cash flows and value sources brought from the new foreign projects and the adjustment of the existing foreign projects are introduced. A new risk measurement for budget exceeding is proposed and a new model is developed based on the new risk measurement. In addition, a genetic algorithm is designed for solving the problem and an example is given as an illustration. The results of the example show that the algorithm is effective for solving the proposed problem. In addition, the results show that the budget can be better used and bigger investment return in net present form can be obtained when new foreign project selection and the existing project adjustment are simultaneously considered than when only new projects are selected. [ABSTRACT FROM AUTHOR]