Advances in Engineering Economics

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074).

Deadline for manuscript submissions: closed (1 July 2023) | Viewed by 8277

Special Issue Editors


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Guest Editor
Department of Economics “Marco Biagi”, University of Modena and Reggio Emilia, Viale Berengario 51, 41121 Modena, Italy
Interests: engineering economics; mathematics for economic decisions; corporate finance; managerial accounting

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Guest Editor
Office of the Provost, University of Massachusetts Lowell, 220 Pawtucket St. Suite 480, Lowell, MA 01854, USA
Interests: engineering economic decision analysis; applied optimization

Special Issue Information

Dear Colleagues,

JRFM is currently accepting submissions to a Special Issue on “Advances in Engineering Economics” covering all areas of engineering economics, broadly defined.

The main objective of this Special Issue is to publish papers dealing with the analysis of industrial and engineering projects, and, in general, capital asset investments. We welcome methodological developments as well as novel applications and case studies in a number of areas, including, but not limited to:

  • Economic decision analysis;
  • Project financing transactions;
  • Capital investment analysis;
  • Abandonment and replacement decisions;
  • Measures of worth;
  • Rate-of-return analysis;
  • Cost of capital;
  • Project ranking;
  • Real options analysis;
  • Research and development;
  • Public policy analysis;
  • Public–private partnership;
  • Production economics;
  • Multi-criteria decision making;
  • Cost estimation;
  • Cost accounting;
  • Sustainability investment;
  • Risk management;
  • Risk and uncertainty;
  • Simulation analysis;
  • Sensitivity analysis.

Given the interdisciplinary nature of engineering economics, we also welcome papers from accounting scholars, finance scholars, operational researchers, financial mathematicians, and researchers lying at the intersection of engineering, management, finance, or accounting, with the understanding that the focus of the paper involves developing and analyzing the economic and financial consequences of investment decisions.

We seek paper submissions that have one or more of the following features:

  • Strengthen the theoretical base of engineering economics;
  • Present new approaches and techniques for project appraisal and investment decisions;
  • Use mathematical modeling for evaluating projects in a novel way;
  • Illustrate analyses using significant case studies;
  • Evaluate techniques used by firms for accounting or the financial analysis of capital investments by means of empirical studies.

For those interested in submitting a manuscript, please see below for further instructions. We look forward to reviewing your work.

Sincerely,
Prof. Dr. Carlo Alberto Magni
Prof. Dr. Joseph C. Hartman
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • engineering economics
  • engineering
  • financial modeling
  • decision analysis
  • project analysis
  • capital budgeting
  • applications of mathematics in industry
  • corporate finance
  • management engineering
  • managerial accounting
  • value creation
  • analysis and valuation
  • optimization

Published Papers (4 papers)

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Research

17 pages, 1372 KiB  
Article
Tax Shields, the Weighted Average Cost of Capital, and the Appropriate Discount Rate for a Project with a Finite Useful Life
by Morris G. Danielson
J. Risk Financial Manag. 2023, 16(9), 398; https://doi.org/10.3390/jrfm16090398 - 06 Sep 2023
Viewed by 2236
Abstract
The standard formulas for calculating the value of a firm’s tax shield and its weighted average cost of capital (WACC) use the assumption that the underlying cash flows are perpetuities. Yet, most projects will have a finite useful life. Because the [...] Read more.
The standard formulas for calculating the value of a firm’s tax shield and its weighted average cost of capital (WACC) use the assumption that the underlying cash flows are perpetuities. Yet, most projects will have a finite useful life. Because the perpetuity approach will overstate the value of a finite-life project’s tax shield, this factor will pressure the perpetuity-formula WACC to be less than the finite-life WACC. However, a large portion of the value of a perpetual tax shield can be attributed to interest payments during the next 5, 10, or 25 years, making it possible for the perpetuity-formula WACC to be greater than the finite-life WACC. Using a series of numerical examples, this paper shows that the finite-life WACC can be either higher or lower than the perpetuity-formula WACC depending on the project’s useful life, the required return on the unlevered project, the firm’s capital structure, the cost of debt, the marginal tax rate, and the debt repayment pattern (e.g., coupon bonds or amortizing loans). The analysis in this article helps managers better understand the potential biases introduced into the capital budgeting process when using the perpetuity-formula WACC to evaluate projects with finite useful lives. Full article
(This article belongs to the Special Issue Advances in Engineering Economics)
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20 pages, 769 KiB  
Article
The Use of the Partitioning Theorem to Prove Further Results Regarding the Distribution of IRRs: And an Open Question
by James Rutherford Cuthbert
J. Risk Financial Manag. 2023, 16(8), 348; https://doi.org/10.3390/jrfm16080348 - 25 Jul 2023
Viewed by 591
Abstract
In 2018, Cuthbert proved that any transaction vector can be uniquely partitioned into a sequence of pure investments with strictly decreasing internal rates of return (IRRs). In a subsequent paper, Cuthbert used the partitioning theorem to derive a new sufficient condition for a [...] Read more.
In 2018, Cuthbert proved that any transaction vector can be uniquely partitioned into a sequence of pure investments with strictly decreasing internal rates of return (IRRs). In a subsequent paper, Cuthbert used the partitioning theorem to derive a new sufficient condition for a transaction to have a unique IRR and proved some results regarding how the IRRs of a transaction must be distributed. This paper proves some further results on the distribution of IRRs. It also poses an open question regarding the possible relationship between the number of IRRs of a transaction and the relative sizes of the smallest and largest IRRs of the terms in the unique partition of that transaction. Full article
(This article belongs to the Special Issue Advances in Engineering Economics)
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67 pages, 22278 KiB  
Article
The Split-Screen Approach for Project Appraisal (Part II: Spreadsheet Modeling)
by Davide Baschieri and Carlo Alberto Magni
J. Risk Financial Manag. 2023, 16(3), 157; https://doi.org/10.3390/jrfm16030157 - 01 Mar 2023
Cited by 1 | Viewed by 2995
Abstract
This paper employs the newly conceived accounting-and-finance engineering system (AFES) described in a previous paper (Magni 2023, “The Split-Screen Approach for Project Appraisal (Part I: The Theory)”), addressed to the analysis of capital asset investments. In this second part, we show how to [...] Read more.
This paper employs the newly conceived accounting-and-finance engineering system (AFES) described in a previous paper (Magni 2023, “The Split-Screen Approach for Project Appraisal (Part I: The Theory)”), addressed to the analysis of capital asset investments. In this second part, we show how to implement this theoretical framework onto a spreadsheet software. We guide the analyst step by step, cell by cell, to the creation of the Split-Screen Matrices describing the project film. Because the AFES is based on two arithmetic relations (law of motion and law of conservation), we can use a minimal approach to modeling, with a frugal use of the most common spreadsheet functions (essentially INDEX and MATCH) and no use of the traditional financial functions, yet fulfilling the requisite of clearness, transparency, consistency, and ease of use. Starting from the informal description of the project, we build the model by breaking it down to 7 modules. The spreadsheet model is available online (see link provided in the paper). Full article
(This article belongs to the Special Issue Advances in Engineering Economics)
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49 pages, 1250 KiB  
Article
The Split-Screen Approach for Project Appraisal (Part I: The Theory)
by Carlo Alberto Magni
J. Risk Financial Manag. 2023, 16(3), 155; https://doi.org/10.3390/jrfm16030155 - 01 Mar 2023
Cited by 1 | Viewed by 1653
Abstract
This paper illustrates an innovative approach to financial modeling of engineering decision-making and industrial projects. The approach is a minimal one, grounded as it is on three notions, two laws, and one matrix that combines them, called Split-Screen Matrix (SSM). This split-screen approach [...] Read more.
This paper illustrates an innovative approach to financial modeling of engineering decision-making and industrial projects. The approach is a minimal one, grounded as it is on three notions, two laws, and one matrix that combines them, called Split-Screen Matrix (SSM). This split-screen approach consists in linking the accounting and financial input data and systematizes them into the SSM, whose columns report the pro forma book values of capital (balance sheets), the corresponding income components (income statements), and the associated cash flows (cash-flow statements) while the rows show the project’s dynamical evolution. The SSMs are then linked via a continuous split-screen strip. To appraise the project, we use a pair of SSMs, namely, the project matrix and the benchmark Matrix (with the related strips), the latter containing the alternative amount invested and the associated foregone profit of a financial portfolio replicating the project’s cash flows. Using differences between the corresponding elements of the two strips, the economic profitability of the project can be easily measured, in both absolute terms (e.g., net present value, market value added, residual income) and relative terms (e.g., average return on assets, cash-flow return on capital). The accounting-and-finance engineering system (AFES) obtained with the split-screen approach is particularly helpful when using spreadsheet modeling because it does not require (knowledge and) use of financial spreadsheet functions. The application of this approach on spreadsheet modeling is essentially based on the continuous split-screen strip, here described, and is illustrated in a following paper (Baschieri and Magni 2023, “The Split-Screen Approach for Project Apraisal (Part II: Spreadsheet Modeling)”). Full article
(This article belongs to the Special Issue Advances in Engineering Economics)
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