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Transition Economics
Published in Susan Krumdieck, Transition Engineering, 2019
The key point of difference between conventional financial analysis and transition economics is the shifting of perspective in time. The time value of money used in conventional economics assumes that the economy will continue to grow, inflation will occur, returns on investments will increase revenues, and essentially this will all make the value of money in the future lower from today’s perspective. The nature of the energy transition necessarily means that growth in the future, in the same sense as in the past, is not likely. The interdisciplinary transition innovation, engineering and management (InTIME) project economic analysis and decision support is based on the energy and materials performance of the business or organization at every point in time, not just the net present value of cost savings.
Economic analysis of transit facility preservation
Published in Zongzhi Li, Transportation Asset Management, 2018
The discount rate measures the time value of money. Compared with the previous year, even with the same amount of money, the worth in this year is 1/(1 + i) times of that in the previous year. This factor has a lot of names depending on the case of application. In the context of a bank loan, this becomes the loan interest. If we could find a value of this discount rate such that the present worth of benefit is identical to the present worth of cost, this value is called the IRR. Another name of the discount rate is MARR, which is the minimum attractive rate of return on a project at which the decision-maker will accept the project, with its potential risk and the opportunity cost given. If the discount rate is less than MARR, the project is not attractive.
Introduction
Published in Robert C. Creese, M. Adithan, B. S. Pabla, Estimating and Costing for the Metal Manufacturing Industries, 1992
Robert C. Creese, M. Adithan, B. S. Pabla
The time value of money deals with the concept that a dollar now is worth more than a dollar in the future. This is also implied in the saying "A bird in the hand is worth two in the bush." The problem is trying to determine how much more a dollar now is worth versus a dollar in the future, which leads to the concept of rate of return, also called required rate of return, return on investment (ROI), and internal rate of return. The rate of return includes not only the interest one would earn on investing but also a risk factor as the investment may fail, a factor for inflation, a factor for profits, etc.
An economic manufacturing quantity model with rework process for deteriorating products under maintenance-quality policy
Published in International Journal of Modelling and Simulation, 2022
Ali Salmasnia, Zahra Hajihosseini, Mohammad Reza Maleki
The time value of money is an important financial concept for analyzing the costs of different production systems. However, as far as we know, only few studies in the literature have investigated the impact of the time value of money on the production costs. The impact of net present value (NPV) on a stochastic inventory model has been analyzed by Van der Laan [37] where the manufacturing and re-manufacturing activities are integrated. Using Laplace transformation, Disney et al. [38] developed the EPQ model by analyzing cash flows from the NPV viewpoint. Moreover, a mathematical formulation based on the NPV technique and financing concepts has been studied by Beullens and Janssens [39]. Then, Salmasnia et al. [40] incorporated the time value of money into a hybrid model based on production cycle length, maintenance scheduling, and SPM under stochastic shift magnitude. Furthermore, Kawabata et al. [41] studied the NPV as an effective indicator leading to preventive maintenance of port mooring facilities. For detailed elaboration, Table 1 classifies the mentioned studies in the existing literature under six different metrics.
Life cycle cost optimisation model for design and reinforcement of dams based in fuzzy clustering and a backtracking search algorithm
Published in Structure and Infrastructure Engineering, 2021
Huaizhi Su, Jianxin Gao, Zhiping Wen
Capital discount rate is the ratio of future expected earnings to present value; it is an important parameter in LCC calculation. The whole life cycle is a relatively long time period, and the expenses generated by each time node are different and the value is different. As time goes on, the current money has more value than the same amount of money that will be received in the future, which is the time value of money. Discounting is a concept of time priority. The future earnings are lower than the present earnings, and the value decreases regularly with the extension of future earnings period. In order to calculate the sum of all the costs in the life cycle at a time node, the maintenance cost on the future time node is converted to the price of the same value at the current time node as: where CP is the cost of the current time node; CN is the cost after N years; is the discount rate. According to the statistical results of the relevant data, the discount rate of construction cost of construction projects in China is roughly determined, which is 2% in the first 60 years and 3% after 61 years (Hu, Liu, & Gao, 2008).
Inclusion of environmental impacts in life-cycle cost analysis of bridge structures
Published in Sustainable and Resilient Infrastructure, 2020
Zhujun Wang, David Y. Yang, Dan M. Frangopol, Weiliang Jin
Considering the time value of money, costs in the future are discounted to present value using a certain discount rate. The discount rate used to convert future environmental cost to present value is the environmental cost discount rate, which is denoted as γE in this paper. The environmental cost discount rate is under huge debate (Atkinson et al., 2008; Munda, 1996). The environment is an ever-changing system that can improve or deteriorate over time, which means that the same amount of emissions today can have different environmental impacts in the future (Gluch & Baumann, 2004).The pollution prevention and treatment techniques are also developing. What considered toxic and forbidden today might be treated and utilized in the future. In addition, the durations of environmental impacts differ among various pollutants. For instance, SO2 persists in the atmosphere for around 2 to 5 days (CITEPA, 2017), N2O for 121 years (Myhre et al., 2013), while 20% of the CO2 lasts thousands of years (Archer, 2005). Discounting all the environmental costs by same discount rate might overestimate some effects while underestimate the others.