HISTORICAL RETURN ON INVESTMENTS FOR LARGE INDUSTRIAL COMPANIES IN BASIC INDUSTRIES IN THE U.S.A. (RATE RETURN; UNITED STATES).
Item
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Title
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HISTORICAL RETURN ON INVESTMENTS FOR LARGE INDUSTRIAL COMPANIES IN BASIC INDUSTRIES IN THE U.S.A. (RATE RETURN; UNITED STATES).
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Identifier
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AAI8508696
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identifier
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8508696
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Creator
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DRESSLER, OFER.
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Contributor
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Reuel Shinnar
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Date
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1984
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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Investment decisions are difficult economic decisions as those involving the choice between present and future consumption. In order to guarantee the consumption growth in the future, a growth of capital investment and R&D spending is necessary today. However, in the last twenty years, the growth of capital spending in plant, equipment and R&D has slowed (5).;Most of the large companies are using the discounted cash flow method in their capital budgeting process. In such an analysis, it is highly important to know what rate of return can a company expect to get back on its investments. It is shown that for many of the companies the historic rate of after-tax return on their investment ranged between 3-7%. It is much less than managers are using in their investment decisions. That by itself contributes to a decreased willingness to invest.;However, in order to obtain the historical return on capital invested by a company, none of the methods can be applied. For a single investment we know (assume) an exact cash flow generated by the investment and the investment's lifetime. But in the case of a company, the cash flow and the investment's lifetime are not so easy to detect. In addition, the profitability measures are known to have disadvantages. These depend on accounting rules which in many cases can give an improper picture of the company.;In order to explore the real rate of return on company investments we, therefore, derived a new method. The data base for our research includes twenty three of the larger American corporations. They represent chemical, oil, steel, aluminum consumer products, rubber and paper industries. The data have been collected from the companies' financial reports issued during the period between 1935-1982.;In the last few years inflation has increased to above 10%. Companies have therefore increased their expected rate of return. The effect of inflation on the basic industry is analyzed. It is shown that in basic, capital intensive industries inflation has an autocatalytic or self-accelerating effect nature.;The inflationary forces that arise from using high expected rate of return reveal another important aspect of the real historic rate of returns obtained in Part I.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
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Program
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Engineering
