Date of Award

9-1991

Document Type

Thesis

Degree Name

Master of Science

First Advisor

David S. Christensen, PhD

Abstract

This study explored the potential application of the cash recovery rate in determining the social cost of capital. It specifically investigated the results of using cash-recovery rate-based, internal rate of return-estimating relationships, which were formulated under assumptions of constant investment growth rate, to estimate internal rates of return for simulated firm-level financial data generated using both exponentially increasing and sinusoidal investment growth rates. An extensive literature review is used to build a analytical link between the need for updating the social discount rate, capital budgeting decisions based on internal rates of return, and the proposed behavior of the cash recovery rate as a surrogate for the internal rate of return. Analysis of the estimated internal rates of return, based on an algorithm developed by the author, indicates the relationships remain valid under the more complex growth rate patterns. This result further supports the use of cash recovery rates as a means of measuring firm profitability and also strengthens the case for additional research into applying an opportunity cost of capital approach for the selection of a social discount rate based on a nationally averaged internal rate of return.

AFIT Designator

AFIT-GSM-LSY-91S-11

DTIC Accession Number

ADA246731

Comments

Presented to the Faculty of the School of Systems and Logistics of the Air Force Institute of Technology, Air University, in Partial Fulfillment of the Requirements for the Degree of Master of Science.

The author's Vita page is omitted.

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