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The Cost Decision: A New Discount Approach for Net Cost Projects

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  • Grant Pollard

    (School of Economics and Finance, Queensland University of Technology)

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    Abstract

    This discussion paper proposes a new decision rule for economic investment theory, the Cost Decision, and describes a new discount approach for Net Cost Projects and the Net Present Cost Formula. The paper illustrates the problems faced internationally, at all levels of government, of assessing Net Cost Projects from a finance perspective. The paper discusses the Cost Decision in the controversial context of public-private partnerships and compares the four main alternative approaches to the Cost Decision currently used in practice. The paper is also relevant when analysing Net Cost Projects undertaken by private sector entities and individuals.

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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2005/No%20199%20-%20Pollard.pdf
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    Bibliographic Info

    Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 199.

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    Date of creation: 15 Jun 2005
    Date of revision:
    Handle: RePEc:qut:dpaper:199

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    Postal: GPO Box 2434, BRISBANE QLD 4001
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    Web page: http://www.bus.qut.edu.au/faculty/economics/
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    Related research

    Keywords: Corporate Finance; Investment; Economic Investment; Finance Investment; Discount Rate; Net Present Cost Formula; Cost Decision; Net Cost Projects; Social Projects; Net Present Cost; Net Present Value;

    This paper has been announced in the following NEP Reports:

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    1. Lev, Baruch, 1974. "On the Association between Operating Leverage and Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(04), pages 627-641, September.
    2. Mandelker, Gershon N. & Rhee, S. Ghon, 1984. "The Impact of the Degrees of Operating and Financial Leverage on Systematic Risk of Common Stock," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(01), pages 45-57, March.
    3. Lewellen, Wilbur G, 1977. "Some Observations on Risk-Adjusted Discount Rates," Journal of Finance, American Finance Association, vol. 32(4), pages 1331-37, September.
    4. Celec, Stephen E & Pettway, Richard H, 1979. "Some Observations on Risk-Adjusted Discount Rates: A Comment," Journal of Finance, American Finance Association, vol. 34(4), pages 1061-63, September.
    5. Lewellen, Wilbur G, 1979. "Reply to Pettway and Celec [Some Observations on Risk-Adjusted Discount Rates]," Journal of Finance, American Finance Association, vol. 34(4), pages 1065-66, September.
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