As 2023 comes to an end, I want to thank all of the peer reviewers and our area editor team for investing their time and expertise into this year’s volume of The Engineering Economist. It has been an economically volatile year for many countries across the world, which has heighted the need for data-driven engineering economic models to support capital investment decisions under conditions of uncertainty. This drives the importance of journals like The Engineering Economist that disseminate recent work in this critical area. I appreciate the efforts of area editors K. Jo Min and Carlo Alberto Magni who provided editorial support to this issue.
This issue begins with an article entitled “Introducing a Real Option Framework for EVA/MVA Analysis” by Arnold, Crack, Marshall, and Schwartz. The authors present a novel project valuation framework that allows for Economic Value Added (EVA) and Market Value Added (MVA) analysis to be incorporated into a binomial tree option pricing model. Their Economic Value Added and Market Value Added project valuation with an embedded binomial tree is deemed to be an equally valid and robust technique to the traditional Net Present Value analysis. This work validates the use of EVA/MVA for project valuation and shows that strategic real option analysis can be incorporated into corporate decision making.
In “Investor Expectations and the AIRR Model” by Danielson, earlier work on valuation and growth expectations is merged with the Average Internal Rate of Return (AIRR) models developed by Magni in 2010 and 2013. The new model simplifies the calculation of the firm’s expected competitive advantage period and expected annual growth rate and can be used to quantify expectations for both dividend and non-dividend paying firms when the return on new investments or the required return on equity might not be constant in the future.
Díaz-Borrego, Miras-Rodríguez, and Jiménez Naharro co-authored the third article “Managing a High Uncertainty Scenario through a Real Option Assessment: Evidence from a Copper Concentrate Trader.” Their work utilizes real options analysis to assess uncertainty in the copper concentrate trading business and provides a reliable tool that increases managerial flexibility and mitigates the level of uncertainty affecting long-term goals.
The Engineering Economist journal publishes articles, case studies, surveys, and book and software reviews that represent original research, current practice, and teaching involving problems of capital investment. For questions or inquiries, please contact me at [email protected].