Economics Insights @ CBS

The financial policy highly leveraged firms (HLFs) commonly follow implies uncertain leverage. Explicit allowance for this characteristic leads to two complementary pricing models. A recursive formula for the value of HLF follows from applying the adjusted present value (APV) approach to uncertain tax shields. This formula is used to evaluate the robustness of the simple APV rule and other valuation approaches used in practice.

When the surge of equity REIT initial public offerings (IPOs) came to market in 1993 and 1994, the quality as well as an obvious increase in the quantity of newly securitized real estate (approximately $15.1 billion in the first two years of this bull market), defined a new REIT marketplace. By the end of 1995, the implied market capitalization of equity REITs had reached $59 billion, fourfold its size in 1992, and these real estate companies controlled approximately $83 billion in real estate.

In this paper we discuss stochastic Economic Lot Scheduling Problems (ELSP), i.e., settings where several items need to be produced in a common facility with limited capacity, under significant uncertainty regarding demands, production times, setup times, or combinations thereof. We propose a class of production/inventory strategies for stochastic ELSPs and describe how a strategy which minimizes holding, backlogging, and setup costs within this class can be effectively determined and evaluated.

Case studies of a number of specific drugs have shown that these drugs reduced the demand for hospital care and, in some cases, led to decreases in mortality. For example, according to the Boston Consulting Group Inc., operations for peptic ulcers decreased from 97,000 in 1977, when H2 antagonists were introduced, to 19,000 in 1987; this is estimated to have saved $224 million in annual medical costs. The recent Scandinavian Simvastatin Survival Study indicated that giving the drug simvastatin to heart patients reduced their hospital admissions by a third during five years of treatment.