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The timing option and the interest rate sensitivity of investment.: An article from: Engineering Economist
	Author: Jacques A. Schnabel Publisher: Institute of Industrial Engineers, Inc. (IIE) Buy New: $9.95 as of 2/10/2012 20:21 MST details In Stock Seller: Amazon.com Format: HTML Language: English (Published) Media: Digital Pages: 10 ASIN: B003F1P484 Publication Date: January 1, 2010 Availability: Available for download now



Editorial Reviews: Product Description This digital document is an article from Engineering Economist, published by Institute of Industrial Engineers, Inc. (IIE) on January 1, 2010. The length of the article is 2959 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available immediately after purchase. You can view it with any web browser. From the author: Employing a refinement of Irving Fisher's timber harvesting paradigm, a theoretical capital budgeting model that accounts for timing considerations is developed. To provide focus but without loss of generality, the specific decision setting of an entrepreneur planning a startup is broached. The model is then used to gauge the sensitivity of investment expenditures to interest rate changes. A rise in the interest rate is shown to have two effects. The first effect is the obvious reduction in the venture's net present value (NPV). The second effect, which refers to the interest rate-induced change in the timing of the venture's implementation, is more subtle. For highly profitable ventures, the interest rate rise induces the entrepreneur to initiate his startup sooner, whereas for less profitably ventures, the startup is postponed. Thus, due to the presence of this implementation timing option, startups and, more generally, investments that reflect a timing option are less (more) interest rate sensitive than other investment decisions where the timing option is absent if highly (less) profitable ventures predominate. Citation Details Title: The timing option and the interest rate sensitivity of investment. Author: Jacques A. Schnabel Publication: Engineering Economist (Magazine/Journal) Date: January 1, 2010 Publisher: Institute of Industrial Engineers, Inc. (IIE) Volume: 55 Issue: 1 Page: 52(8) Distributed by Gale, a part of Cengage Learning

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