Determination of the Financing Scale, Time Limit and Returns from the Investment in BOT Projects

The key aspect to the successful implementation of BOT concept is the raising of finance by project sponsor, so financial engineering techniques and capital structuring skills are required to find the proper mix of debt and equity. The capital structure and present a model to determine the equity level from the aspects of financing scale, construction time and return on investment are analyzed. The resulting model can help the sponsor to avoid the capital risk, and offer the government a criterion to evaluate management ability of the sponsor. To show the application and availability of this model, a case study is conducted. Thus, this paper is concern with the determination of financing scale, construction time, and return on investment which would assist the sponsor to ensure that the equity level for optimal capital structure is available prior to the implementation stage in BOT project operation.     

National Culture and International Differences in the Cost of Equity Capital

• Prior literature suggests that national culture influences many facets of business operations including corporate governance, capital structure, managerial compensation, foreign direct investment behavior and accounting systems.
• Extending this line of literature, we examine whether key aspects of national culture are also related to international differences in the cost of equity capital.
• In a cross-country sample of 32 countries during 1992–2006, we find that the cost of equity capital tends to be higher in more individualistic and less uncertainty avoiding societies consistent with their greater risk-taking orientation.
• This finding contributes to the international business and financial literature by identifying national culture as an important institutional variable influencing firms’ cost of equity capital around the world.

     

What does return on investment (ROI) mean to the pharmaceutical/biotechnology industry?

Abstract

Return on investment (ROI) calculations are common tools used by pharmaceutical and biotechnology companies in evaluating product returns, guiding decisions on further product development or terminating programs prior to company losses. ROI calculations compare the estimated profits from a product to the investments necessary to get the product developed, approved and marketed. Risk factors are incorporated into the ROI, which consider multiple factors including competitor products and market demand. ROI calculations enables a company to set and apply metrics for the evaluation of projects that can be applied consistently, across a portfolio, and goes beyond simple profitability assessments. When coupled with additional financial tools and strategic evaluations such as strengths, weaknesses, opportunities and threats (SWOT) analysis, ROI can provide invaluable and comparable insight into the value of potential projects and products. Here, we present a framework for executing ROI calculations to enable investment or termination decisions for research and development projects. This is augmented with insight on how to apply the framework to academic, government and NGO evaluations where ‘profits’ are not always measured in purely economic terms. Implementing ROI in the evaluation process facilitates go/no go decisions and the comparison of projects using a simple, consistent financial approach.     

Management of Concurrent Engineering: Organizational Concepts and a Framework of Analysis

ABSTRACT

This article examines the concept of concurrent engineering and presents a framework for evaluating its management. The key organizational concepts for managing new product development are first analyzed from a historical perspective. The concurrent engineering approach to new product development is then contrasted with both the traditional sequential and the more recent overlapping problem-solving approaches. Finally, a model for managing current engineering is presented. The model consists of five critical components that may be used by engineering managers for guiding the implementation of their concurrent engineering efforts.     

Globalization of the Automobile Industry

ABSTRACT

The Japanese automobile industry has spearheaded a globalization drive that began before World War II with its use of foreign technology. This internationalization effort relied on the export of initially subcompact cars to the United States followed by capital investments in overseas manufacturing plants and the transfer of technology. A concerted move into the luxury car market has brought the Japanese into direct competition with European makers even as joint ventures and equity investments are made in Europe. In this article, corporate decisions to expand abroad are discussed along with how these moves were facilitated by the revolution in global finance and the concurrent growth of the Japanese financial sector.     

Modeling Government Subsidies and Project Risk for Financially Non-Viable Build-Operate-Transfer (BOT) Projects

Abstract:

Governments encourage private sector participation in building infrastructure through Build-Operate-Transfer (BOT) agreements. Large projects may be financially non-viable despite their net economic benefits for the host society. Host governments might subsidize initial private investments to create financial feasibility. Small-scale subsidies might not sufficiently reduce project risks to attract private investment; however, large percentage subsidies might result in loose profit structures, discouraging the pursuit of efficiency. This article applies Monte Carlo techniques to data from the Taiwanese West Corridor High-Speed Rail Project to assess the subsidy-risk trade-off relationship. The results provide guidance for public-private negotiations.     

Technology Engineering: The Concurrent Development of Space Transportation Systems and Technology

Abstract:

This article develops and presents a technology engineering framework for the selection, development, and insertion of space transportation technologies concurrent with the systems engineering of the space transportation system(s) in which the technology will eventually be employed. The technology engineering framework developed and presented in this article draws on existing systems engineering processes, tools, and methods; takes into account the differences between systems engineering and technology engineering; and accounts for the high degree of interaction required between the concurrent technology and system development programs. The components of this technology engineering framework are discussed, and the major steps in the technology engineering process are outlined. An investigation is also conducted into facilitating the implementation of key portions of the framework using a state-of-the-art relational computer database referred to as the Reusable Launch Vehicle (RLV) Technology Database (RTDB). This database is demonstrated to provide an invaluable tool to collect, manipulate, analyze, document, and disseminate technology-related information, including previous research results, key technical parameters and characteristics, technology readiness levels, relationships to other technologies, costs, and potential barriers and risks.     

The Performance of Independent Active SMEs in French Competitiveness Clusters

This article analyses the evolution of independent members of French independent competitiveness clusters. It compares small and medium-sized enterprises (SMEs) that participated in collaborative research projects, funded by French competitiveness clusters, against similar control companies that were not part of such projects and not funded by the policy, over the period 2005–2013. French competitiveness clusters seek to enhance SMEs’ size, performance, innovation and employment; the current study therefore assesses their outcomes in terms of capital invested and equity returns. The findings from a difference-in-differences analysis reveal that sales, employment, R&D investments, and value added all increase in relative terms, but financial returns exhibit significant relative decreases for the smallest companies, whereas larger firms record strong increases. The inability of the smallest SMEs to reap gains from their cluster membership should be a matter of great concern to both companies and policy-makers.     

Stable profit sharing in cooperative investments

This paper examines profit sharing in cooperative investments where investors bundle their capital endowments to meet the capital requirements of long term investment projects. Furthermore, investors may reinvest intertemporal gains from existing projects into new projects. Focus is on stable allocation schemes as stability is necessary to sustain the long term cooperation of investors. The paper presents sufficient conditions for the existence of stable profit sharing schemes using linear programming techniques.This complete issue was revised and published online in November 2004. The previous version contained a false date. Correspondence to: Anja De WaegenaereThe authors wish to thank two anonymous referees for comments that helped to improve the paper significantly. The research of J. Suijs is made possible by a fellowship of the Royal Netherlands Academy of Arts and Sciences (KNAW).     

Factors That Affect the Growth Rate of Equity Capital

Six factors that affect either the transient or the long-term growth rate of equity capital are identified. The use of the net present value method of financial accounting to compute the equity value of hypothetical firms is described. Simulation of sequences of capital budgeting decisions in hypothetical firms was used to illustrate the effects of the six factors on the growth rate of equity capital. The upper limit of a firm's steady-state capital growth rate was affected by (1) the maximum yield attainable from its long-term investments, (2) its debt policy, (3) its budget allocation policy, and (4) the (average) life of its long-term investments. Unless the selection procedure was random, the transient values of a firm's annual growth rate of equity were affected appreciably by (1) the growth rate of its long-term investment opportunities, (2) its debt policies, and (3) its past decisions. Random variation in the growth rate of investment opportunities had little affect on the average growth rate of the firm, but it had appreciable affect on the year to year values. The factors that had the greatest influence on the long-term growth of equity capital were generation of high yielding investment opportunities and estimating expected values of cash flows accurately.     

A Modeling View of Breakthrough Innovation

Abstract

In this article we present a dynamic modeling framework, which facilitates an evaluation of a breakthrough innovation. One of the powerful aspects of this framework is its robustness. This process helps identify directions that increase the probability for finding possible breakthrough ideas and eventually products. This framework facilitates the initial evaluation of individual projects and also has value in evaluating accepted projects as they progress. Lastly, this framework is instrumental in the critical “go, no-go” decision, which inevitably happens somewhere along the line for most revolutionary products.     

Reliability: How much is it worth? Beyond its estimation or prediction, the (net) present value of reliability

In this article, we link an engineering concept, reliability, to a financial and managerial concept, net present value, by exploring the impact of a system's reliability on its revenue generation capability. The framework here developed for non-repairable systems quantitatively captures the value of reliability from a financial standpoint. We show that traditional present value calculations of engineering systems do not account for system reliability, thus over-estimate a system's worth and can therefore lead to flawed investment decisions. It is therefore important to involve reliability engineers upfront before investment decisions are made in technical systems. In addition, the analyses here developed help designers identify the optimal level of reliability that maximizes a system's net present value—the financial value reliability provides to the system minus the cost to achieve this level of reliability. Although we recognize that there are numerous considerations driving the specification of an engineering system's reliability, we contend that the financial analysis of reliability here developed should be made available to decision-makers to support in part, or at least be factored into, the system reliability specification.     

Experience,Equity and Foreign Investment Risk: A PIC Perspective

We analyze foreign investment risk-mitigating effects of host-country policy stability, firm experience and equity stakes using an empirical context largely ignored by international business (IB) research: project investment companies (PICs). PICs permit cleaner separation of individual investment project risk from the parent firm, which may otherwise pool risk characteristics from managing multiple projects across different industries and countries. PICs also permit potentially unbiased, prospective risk assessment at the time of a project’s initial announcement based on the mix of debt and equity funding the project. Consistent with previous IB research, our analyses of 396 PICs announced in 53 countries from 1990–2006 indicate that investment risk measured as the percentage of equity-to-total capital funding a PIC decreases with greater host-country policy stability, lead-investor experience in the host country, and lead-investor equity stakes. But contrary to previous IB research, we find that lead-sponsor experience and equity stakes reduce investment risk less as host-country policy stability decreases. From a PIC perspective, investor experience and equity stakes are complements to (not substitutes for) host-country policy stability. Our PIC-based evidence re-invigorates research and related practice and policy debates about how investor experience and equity holdings affect foreign project decisions and suggests new avenues for future work.     

Robust Design and Professional Services: A Hospital Emergency Room Case

ABSTRACT

This article describes what we believe is a new application of robust design methods. This study challenges the paradigm that robust design does not apply to services. We used a simple robust design approach to optimize the processes of a hospital emergency room. Results show a 25% reduction in average patient length of stay (LOS) without major capital investment for an expanded facility. Confirmation runs showed excellent repeatability. The greatest challenge was helping the team accept and implement the results, thus improving quality without larger staffs, facilities, and budgets. This study suggests that robust design methods can be used to optimize processes outside the product development arena.     

New product development in new ventures: the quest for resources

Innovation and new product development (NPD) are becoming more important as strategic initiatives. Yet, innovation creates challenges for most existing organisations, thus leading to the emergence of new ventures (NVs) as vehicles to deliver innovation. NVs present owners and management with unique opportunities and challenges. On one hand, the NV can focus its attention on specific innovation(s) without having to compete with other goals and departments for resource access. Resources are critical to the successful development and launch of new products and can come from financial lenders and/or suppliers. However, because they are new and because their only asset of worth is the highly risky innovation, NVs are at a strong disadvantage in securing access to these resources. This study explores the effectiveness of using personal equity investments as a strategy for securing access and for enhancing NPD success. Using signalling theory as the theoretical framework and data from 745 NPD projects representing manufacturing innovations, this study finds that equity investment is particularly successful in its NPD impact although not impactful with suppliers. As a signal, it can be argued that equity is a strong, high-quality signal. Reasons for these findings and directions for future research are provided.     

Design for Quality Using Response Surface Methods: An Alternative to Taguchi's Parameter Design Approach

ABSTRACT

This article presents the response surface methodology as an alternative approach to Taguchi's parameter design methods for optimizing designs for quality. The method is briefly explained, and its application is illustrated by an example of a preliminary design study of an advanced space transportation vehicle. The results indicate that the response surface methodology is a systematic and efficient approach that can help engineering managers design for quality, performance, and cost.     

High-tech entrepreneurial firms’ innovation in different institutional settings. Do venture capital and private equity have complementary or substitute effects?

ABSTRACT

The paper explores whether venture capital (VC) and private equity (PE) investments have complementary or substitute effects on innovation in high-tech entrepreneurial firms in different institutional settings, focusing on different levels of capital market development, entrepreneurial culture, and intellectual property rights protection. Using a panel sample of 326 firms from 12 EU countries observed from 2009–2013, the empirical results show that the VC/PE effect on high-tech entrepreneurial firms’ innovation is stronger in countries with a less-developed capital market. This suggests that VC/PE investments play a substitute role. A partial substitute role of VC/PE is also detected in firms located in countries with a low entrepreneurial culture. However, no significant evidence emerged regarding the level of protection of intellectual property rights. The results are generally robust to various econometric specifications. The implications of the resulting framework, the study’s limitations, and opportunities for further research are also discussed.     

现金流量与公司投资决策--从公司规模角度的实证研究

根据现代公司金融理论，将融资因素引进公司的投资模型，研究不同规模的公司投资与现金流量的关系，并探寻不同规模公司投资决策行为差异的背后动机。实证研究发现：大规模公司投资对现金流量的敏感性要高于小规模公司，动因检验的结果表明大规模公司投资依赖于现金流量源于信息不对称理论，小规模公司源于自由现金流量的代理成本理论，这为我国完善资本市场、制定合理政策提供了借鉴的依据。     

Valuation for the Strategic Management of Research and Development Projects: The Deferral Option

Abstract:

The most widely used financial technique for evaluating projects is discounted cash flow; however, discounted cash flow analysis fails to consider flexibility. Real options analysis offers an alternative technique that provides value for the managerial flexibility that is inherent in most R&D projects. This article investigates the deferral option using computer simulation. There are five variables that determine the value of the deferral option, and simulations analyze these variables over a wide range of conditions. Sensitivity analysis on the five variables is performed and the results are discussed.