Accounting for Semi-Permanence

28 Pages Posted: 6 Jun 2014

See all articles by Robert D. Cairns

Robert D. Cairns

McGill University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 4, 2014

Abstract

For much of its life, a tangible capital good is irreversibly committed to an investment projects. The paper examines what it means for capital to be sunk, or to be semi-permanently invested. Value sunk is measured using the options available to managers of a project. External prices may or may not be relevant to an enterprise. Fixing the value of options is the only role for external prices of the assets. Moreover, marginal prices are not used in valuing sunk capital. The choice of real or nominal prices is considered in terms of measured benefits, costs, wealth and income of a project.

Keywords: capital value, irreversible investment, sunk capital, options

JEL Classification: D24, D92

Suggested Citation

Cairns, Robert D., Accounting for Semi-Permanence (June 4, 2014). Available at SSRN: https://ssrn.com/abstract=2446334 or http://dx.doi.org/10.2139/ssrn.2446334

Robert D. Cairns (Contact Author)

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
Canada
514-398-3660 (Phone)
514-398-4938 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
11
Abstract Views
271
PlumX Metrics