Cycles optimization: The equivalent annuity and the NPV approaches

Article Abstract:

The paper discusses the use of a generalized version of the equivalent annuity principle, which takes into account interest rate fluctuations over time. When dealing with applications over a sequence of cycles, e.g. plant replacement ones, the equivalent annuity is usually defined with reference to each single cycle or to the whole sequence. First, we study the correspondence between net present values and equivalent annuities as defined above in optimization problems. We show that only the second definition is appropriate for optimization, whenever the length of the cycle is a choice variable. However, also the second is not necessarily correct, when the horizon is finite. Then, we discuss the corresponding problems of optimality, both with an infinite and a finite sequence of cycles. Applications to a simple plant replacement problem are illustrated: they show how different the optimal decisions can be from the equivalent annuity ones. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Net present value; Equivalent annuity; Plant renewal

United States, Production (Economics)

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Revision of industrial supply conditions and game theory

Article Abstract:

A planned change from a 'risk and revenue sharing agreement' to a supplying agreement on the part of two firms, European Aircraft Engines(EAE), and Worldwide Aircraft Engines(WAE), illustrates a constrained bilateral monopoly problem. The shifting process consists of two stages with the first dealing with sequential decisions of price and demand while the second one deals with bargaining over a couple price-quantity. Results showed that bargaining is efficient in terms of the constant price case but efficiency does not apply without further conditions in the price schedule case.

Research and Development in the Physical, Engineering, and Life Sciences, Aircraft Engine and Engine Parts Manufacturing, Commercial physical research, Research & Development-Industry, Aircraft engines and engine parts, Aircraft Engine Parts, Analysis, Industrial research, Economic policy, Aircraft engine industry, Economic research, Industrial organization, European Aircraft Engines, Worldwide Aircraft Engines

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Capital structure and inventory management: the temporary sale price problem

Article Abstract:

A study was conducted to analyze the use of adjusted present value methods in the temporary sale price problem during the presence of equity or debt financing. Different inventory policies were examined. Numerical examples were also presented to analyze the importance of capital structure on inventory decisions. Results indicated that the realization of optimum conditions correlated with the financial variables.

Inventory Control, Management, Debt financing (Corporations), Debt financing, Inventories

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