Marginal return on investment and marginal cost of raising capital. Marginal cost of capital Marginal return on capital

When a person invests money or purchases a capital asset, he acquires the right to a set of future income from the sale of the relevant product, less the ongoing costs associated with its production - income that he expects to receive over the life of the asset. It is convenient to call this series of annual incomes Q1, Q2, ..., Qn the expected income from the investment.

The expected income from an investment is opposed by the supply price of capital property, understood not as the market price at which property of this type can currently be purchased on the market, but as a price just sufficient to induce the manufacturer to produce a new additional units of this property, i.e., what is usually called its replacement cost. The relationship that relates the expected income from a capital asset to its supply price or replacement cost, that is, the relationship between the expected income generated by an additional unit of a given type of capital asset and the price of production of that unit, gives us the marginal efficiency of capital of that type. More precisely, I define the marginal efficiency of capital as the value equal to that discount rate which would equate the present value of the series of annual returns expected from the use of the capital asset during its useful life with its supply price. In this way we obtain the maximum efficiency of individual types of capital property. The greatest of these marginal efficiencies can then be regarded as the marginal efficiency of capital as a whole.

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The reader should note that the marginal efficiency of capital is defined here in terms of expected income and the current supply price of the capital asset. It depends on the rate of return expected to be received by investing in newly produced property, and not on a retrospective assessment of what the investment brought in relation to its original cost at the end of the property's life.

If, over a period of time, there is an increase in investment in any given type of capital, its marginal efficiency decreases as investment increases, partly because the expected return will fall as the supply of that type of capital increases, and partly because , as a rule, increasing the load on the capacity to produce the corresponding capital goods will cause an increase in their supply price. The second of these factors is usually more important when establishing equilibrium for short periods of time, but as longer periods are considered, the importance of the first factor increases. Thus, for each type of capital, we can construct a graph showing how much investment in that type of property must increase during a given period in order for its marginal efficiency to fall to any given value. We can then combine these graphs for all the different types of capital, thus obtaining a graph relating the amount of total investment to the corresponding marginal efficiency of capital as a whole. Let's call it the schedule of investment demand, or, in other words, the schedule of the marginal efficiency of capital.

It is clear that the actual value of current investment will tend to increase until there are no longer any types of capital property left whose marginal efficiency would exceed the current rate of interest. In other words, the amount of investment tends to the point on the investment demand schedule where the marginal efficiency of total capital is equal to the market rate of interest (66). The same can be expressed as follows. If Qr is the expected income from property at time r and dr represents the present value of one pound sterling expected to be received in r years at the current rate of interest, then (Qrdr is the demand price for investment. Their value will reach a level at which (Qrdr will equal the bid price of the investment as defined above. If, on the other hand, (Qrdr does not reach the bid price, then the current investment in the property in question will not be made.

It follows that the incentive to invest depends partly on the schedule of investment demand and partly on the rate of interest. Only at the end of book four will it be possible to give a complete picture of the factors that determine the rate of interest in all their real complexity. However, I ask the reader to note to himself here that neither knowledge of the expected income from property, nor knowledge of the marginal efficiency of this property gives us the opportunity to judge both the rate of interest and the current value of property. It is necessary to deduce the rate of interest from some other source, and only then can we estimate the value of the property by "capitalizing" its expected income.

How does the above definition of marginal efficiency of capital relate to commonly used terms? The marginal productivity, or income, efficiency, or utility, of capital - these are terms that we all often use. However, when studying the economic literature, it is not so easy to find a clear statement of what economists usually mean by these terms.

There are at least three unclear points that require clarification. To begin with, it is not clear whether we are talking about an increase in the product in physical terms per unit of time due to the use of an additional natural unit of capital, or about an increase in the value of the product due to an increase in the value of an additional unit of capital used. In the first case, difficulties arise in determining the natural unit of capital, which, as I believe, is both impossible and unnecessary. Of course, it can be said that ten workers will harvest more wheat from a given piece of land if they can use some additional machinery; but I do not know any other way to reduce this to an understandable arithmetic relationship other than in value terms. However, the many discussions on this issue seem to have been concerned mainly with the physical productivity of capital in one sense or another, although the authors have not been very clear about it.

Secondly, the question arises whether the marginal efficiency of capital is some absolute value or whether it acts as a ratio. The contexts in which it appears, and the habit of treating it as a quantity of the same dimension as the rate of interest, seem to incline us to consider it a ratio. However, it is usually not explained which relationship of exactly two quantities is meant.

Finally, there is a distinction, the neglect of which gives rise to the most confusion and misunderstanding, - the difference between the increment in value obtained through the use of additional capital in the current situation, and the series of increments obtained during the entire service life of the additional capital property, i.e., the difference between Q1 and Q1, Q2,Qn... This raises a whole problem about the role of assumptions in economic theory. Most discussions of the marginal efficiency of capital have not paid any attention to all members of the series other than Q1.

This, however, cannot be justified unless one remains within the framework of a static theory where all Q's are equal. The accepted theory of distribution, which assumes that capital receives its marginal product in each current period of time, is valid only for a stationary state. The total current income from capital has no direct relation to its marginal efficiency. At the same time, the current income from the marginal unit of capital (i.e., the income from capital involved in determining the supply price of products) is equal to the marginal cost of use, which also has no direct connection with the marginal efficiency of capital.

What is striking, as I have already said, is the surprising lack of clarity on this issue. At the same time, I believe that the definition I have given comes very close to what Marshall had in mind. Marshall himself used the expression “marginal net efficiency” of a factor of production, or, in other words, “marginal utility of capital.” The following is a summary of the statements closest to the subject that I could find in his Principles (67). In order to convey the essence of Marshall's thought, I have combined together some phrases that are separated in his text:

"In any factory, additional machinery costing £100 may be so employed as to provide, at no additional expense, an additional £3 to the annual net receipts of the factory, less the depreciation of the machinery. If investors invest capital wherever they expect to make a high profit, and if, after this has been done and the equilibrium has been established, the said income still covers exactly the expenses of using these machines, then we can conclude from this that the annual rate of interest is 3%.However, examples of this kind reveal only a part of those internal forces that determine value. They cannot be expanded into either the theory of interest or the theory of wages without falling into a vicious circle... Let us assume that the rate of interest is 3% per annum on completely reliable securities and that the production of hats absorbs capital in £1 million This means that hat makers can use £1 million worth of capital so profitably that they would rather pay 3% a year for its use than do without it at all. There may be machines that industrialists would not refuse even at 20% per annum. If this rate was 10%, then more machines would be used; at 6% – even more; at a rate of 4% - even more and, finally, at a rate of 3%, even more machines would be used. With the volume that is thus achieved, the marginal utility of the equipment, that is, the utility of that equipment whose price just covers the costs of its use, is measured at 3%."

From what has been said, it is clear that Marshall was well aware that we fall into a vicious circle when we try to determine, following this line of reasoning, what the rate of interest actually is (68). In the passage quoted he seems to agree with the above view that the rate of interest determines the level to which new investment will rise under a given schedule of the marginal Efficiency of Capital. If the rate of interest is 3%, then this means that no one will pay £100 for a car without expecting to increase his annual net income by £3 after paying costs and depreciation. However, in ch. 14 we will see that in other statements Marshall was less cautious, although he retreated whenever he felt that his reasoning was becoming too shaky.

Prof. Irving Fisher gave in his Theory of Interest (1930) a definition of what he called the “rate of return over cost” that coincides with my definition of the marginal efficiency of capital, although he did not use this term. “The rate of return over costs,” he writes, “is a discount rate that, when used in calculating the present value of all costs and the present value of all income, makes these values ​​equal” (69). Prof. Fisher explains that the amount of investment made in any field depends on the rate of return (less costs) taken in comparison with the rate of interest. To stimulate new investment, “the rate of return (net of costs) must exceed the rate of interest” (70). “This new quantity we introduced plays a major role in that part of the theory of interest where the possibilities of investment are studied” (71). Thus, prof. Fisher applies his concept of the rate of return (minus costs) in the same sense and for exactly the same purposes as I use the concept of marginal efficiency of capital.

The greatest confusion about the meaning and meaning of the concept of marginal efficiency of capital arose from a failure to understand the fact that this efficiency depends on the expected income from capital, and not only on its current return. This can best be illustrated by pointing out the effect on the marginal efficiency of capital of expected future changes in the costs of production, whether as a result of changes in the price of labor (i.e., in the unit wage) or as a result of innovations and changes in technology. Products produced by currently manufactured equipment must compete throughout its service life with products produced by new equipment produced in subsequent periods of time, and perhaps at lower labor costs or with improved technology, which makes it possible be satisfied with the lower price of manufactured products; Moreover, this new equipment will be used on an ever larger scale until the price of output falls to the appropriate level. In addition, business profits (in monetary terms) from the use of equipment - old or new - will decrease if cheaper products are produced overall. To the extent that such changes are foreseen in advance as more or less probable, the marginal efficiency of the capital currently put into action diminishes accordingly.

This is the factor by which assumptions about changes in the value of money affect the volume of current output. The assumption that the value of money is falling stimulates investment (and therefore increases overall employment) because it shifts up the marginal efficiency schedule of capital, i.e., the investment demand schedule. The assumption of an increase in the value of money has a depressive effect, because it shifts down the graph of the marginal efficiency of capital.

This truth is precisely the basis of the theory developed by prof. Irving Fisher, on a problem which he originally called "Appreciation and Interest", namely, that there is a difference between the nominal (money) and real rates of interest, the latter being equal to the former only when adjusted for changes in the value of money. As this theory is presented, it is not easy to grasp its meaning, for it is not clear whether the possibility of foreseeing changes in the value of money is allowed or not. One of two things: if they don’t. are provided for in advance, they will not have an impact on current affairs; if provided, then the prices of cash goods will immediately be established at such a level that the benefits of the holders of money and the owners of goods will be balanced and the holders of money will no longer be able to gain or lose from changes in the rate of interest, compensating for changes in the value of the money lent, expected during the term of the loan . Prof.’s trick does not cancel this dilemma either. Pigou, who suggested that some people anticipate future changes in the value of money, while others do not.

It is a mistake to assume that the rate of interest, and not the marginal efficiency of the available fund of capital, is precisely the factor to which future changes in the value of money directly respond. The prices of existing assets always automatically adjust to changes in expectations about the future value of money. The significance of such changes in expectations is that they affect (through the marginal efficiency of capital) the willingness to produce new assets.

The stimulating effect of the expected rise in prices is not due to the increase in the interest rate in connection with this (it would be strange to stimulate output in this way - after all, if the interest rate increases, the stimulating effect is weakened to the same extent), but due to the increase in the marginal efficiency of a given capital fund. If the rate of interest were to rise pari passu with the marginal efficiency of capital, the expectation of rising prices would have no stimulating effect. After all, the incentive to expand output is determined by how much the marginal efficiency of capital increases relative to the interest rate. Undoubtedly, the theory of Prof. Fisher would be much better stated using the concept of the “real rate of interest”, considering it to be that rate of interest which, if established in response to changes in expectations about the future value of money, would eliminate the influence of these changes on current output (72).

It should be noted that the expectation of a fall in the rate of interest will have a downward effect on the marginal efficiency of capital schedule, since it means that output from equipment produced today will have to compete for some part of its life with output from equipment that is efficient and lower net revenue. This expectation will not have a large depressive effect, since ideas about future interest rates on loans of different terms will be partly reflected in the aggregate of rates in force today. But some depressive effect is still possible, since products produced at the end of the life of the currently produced equipment may have to compete with products obtained from newer equipment corresponding to a lower rate of return due to the decline in the rate of interest in the periods following the end of the service life currently produced equipment.

It is important to understand the dependence of the marginal efficiency of a given fund. capital from changes in expectations, for it is this dependence that mainly determines the susceptibility of the marginal efficiency of capital to the rather sharp fluctuations that explain the economic cycle. Below, in chap. 22, we will show that a series of successive rises and falls can be described and analyzed in connection with fluctuations in the marginal efficiency of capital relative to the rate of interest.

The amount of investment is affected by two types of risk that are usually confused, but which need to be distinguished. The first of them is the risk of the entrepreneur or borrower, which arises due to doubts about whether he will actually be able to receive the expected income that he is counting on. If a person puts his own money at stake, then we are talking only about this type of risk.

But where there is a system of borrowing and lending money, by which I mean the making of loans on real security or on the good name of the borrower, there is a second kind of risk which we may call lender's risk. It may be associated either with doubts about the debtor’s honesty, i.e., with the danger of deliberate bankruptcy or other attempts to evade obligations, or with the possibility that the amount of security will be insufficient, i.e., with the danger of involuntary bankruptcy due to unjustified calculations of the borrower. One could add here a third type of risk - one that is associated with a possible change in the value of a unit of the monetary standard, as a result of which a money loan is to a certain extent a less reliable form of wealth than real property. However, such a possibility should be fully or almost entirely reflected and, therefore, compensated for in the price of real durable property.

Let us now note that the first type of risk represents, in a certain sense, necessary social costs, although they can be reduced both through mutual equalization of risk and by increasing the accuracy of foresight. But the second type of risk is a net addition to the cost of the investment that would not exist if the lender and borrower were one and the same entity. In addition, there is a partial duplication of business risk, the assessment of which is added twice to the net interest rate when determining the minimum expected income sufficient for the decision to invest. After all, if the enterprise is risky, the borrower will want the difference between the expected income and the interest rate at which he considers it appropriate to borrow money to be more significant. At the same time, the same motive will induce the lender to insist on a greater increase in the rate he charges above the pure rate of interest, in order to make it profitable for him to lend money (unless the borrower is in such a strong position and wealth that he is able to offer the safest security). The hope of a very favorable outcome, which somehow balances the risk from the borrower's point of view, cannot serve as a consolation for the lender.

This doubling of a certain amount of risk has, as far as I know, not been given much importance up to now, but it may turn out to be important in certain circumstances. During a boom period, the common assessment of risk on the part of both debtor and creditor tends to become unusually and unwisely low.

The graph of the marginal efficiency of capital is of fundamental importance because it is mainly through this factor (much more than through the rate of interest) that the projected future influences the present. The erroneous definition of the marginal efficiency of capital as the current income from capital equipment (this would be true only in a static situation where there is no changing future that could affect the present) led in theory to a severing of the connection between the present and the future. Even the rate of interest is essentially a short-term phenomenon (73); and if we reduce the marginal efficiency of capital to the same situation, we deprive ourselves of any possibility of directly including the influence of the future in the analysis of the existing equilibrium.

The fact that behind the constructions of modern economic theory there is often an assumption of a static state introduces into it a significant element of unreality. But the introduction of the concept of cost of use and marginal efficiency of capital, as they were defined above, will help, I think, to bring the theory closer to reality, limiting itself to a minimum of necessary amendments.

It is precisely because of the existence of long-life equipment in the field of economics that the future is linked to the present. Therefore, our general principles of thinking correspond to the conclusion that calculations for the future should have an impact on the present through the prices of demand for equipment with a long service life.

Content

Any financial and economic activity requires constant investment of capital. To maintain and expand the production process and increase its efficiency, introduce new technologies and develop new markets, direct investments (capital investments) are required. The source of investment can be budgetary allocations, various types of loans, borrowings, the organization's own funds, and share capital.

The choice of sources of financing depends on many factors, including the industry and scale of the enterprise’s activities, technological features of the production process, the specifics of the products, the nature of state regulation and taxation of business, connections with banking structures, reputation in the market, etc.

The ratio of the specific weights of individual components in the total volume of attracted capital characterizes it structure . The capital structure used by an enterprise determines many aspects of not only its financial, but also its operating and investment activities, and has an active impact on the final result of these activities. It affects the indicators of return on assets and equity capital, financial stability and liquidity ratios, and forms the ratio of profitability and risk in the process of enterprise development.

The most important characteristic of an enterprise's capital is its value. The cost of capital is the price that a company pays for its use, i.e. annual expenses for debt servicing to investors and creditors. It is quantitatively measured in the form interest rate characterizing the ratio of the total amount of these expenses to the amount of total capital .

The concept of cost of capital is one of the basic ones in the theory of financial management. It characterizes the level of return on invested capital that an enterprise must provide in order not to reduce its market value. The lower the cost of funds raised, the higher the investment opportunities of the enterprise, the greater the profit it can receive from the implementation of its projects, and accordingly, the higher its competitiveness and the more stable its position in the market.

In addition, the cost of capital (with possible adjustments for inflation and risk) is often used as a discount rate in the process of analyzing future cash flows and assessing the effectiveness of productive investments.

The cost of capital indicator is also a criterion for making management decisions regarding the use of leasing or bank credit for the acquisition of fixed production assets.

The indicator of the cost of capital in the context of its individual elements (cost of borrowed funds) is used in the process of managing the capital structure based on the financial leverage mechanism.

Calculating the cost of capital is necessary at the stage of justifying financial decisions, to select the most effective ways to invest funds and the optimal sources of their financing.

		Sources of company funds
Sources of short-term funds				Sources of long-term capital
Accounts payable		Short-term loans and borrowings		Equity		Borrowed capital
				Ordinary shares		Bank loans
				Preference shares		Bond loans
				Retained earnings and other equity funds

Short-term borrowed funds arise as a result of current operations and are used to finance the current activities of the enterprise, therefore they are not taken into account when calculating the average cost of invested capital. Depreciation charges are a source of covering the costs of acquiring fixed assets. Just like accounts payable, they are taken into account when drawing up the capital budget, reducing the enterprise’s need for additional sources of funds. Their price is assumed to be equal to the average cost of long-term capital attracted from other sources. Depending on the sources, long-term invested capital is divided into own and borrowed. Own capital can be external(share capital) and internal(retained earnings).

Estimation of the cost of a bond loan

The main advantages of a bond issue as a tool for attracting investments from the point of view of the issuing enterprise are:

• the ability to mobilize significant amounts of funds and finance large-scale investment projects and programs on terms that are economically beneficial for the enterprise without the threat of investor intervention in the management of its current financial and economic activities;
• the ability to maneuver when determining the characteristics of the issue: all parameters of the bond loan (volume of issue, interest rate, terms, conditions of circulation and repayment, etc.) are determined by the issuer independently, taking into account the nature of the investment project carried out using funds raised;
• the possibility of accumulating funds from private investors, attracting financial resources from legal entities for a sufficiently long period (longer than the term of loans provided by commercial banks) and on more favorable terms, taking into account the real economic situation and the state of the financial market;
• ensuring an optimal combination of the level of profitability for investors, on the one hand, and the level of costs of the issuing enterprise for the preparation and servicing of a bond issue, on the other hand;

The cost of capital received from the placement of a bond issue for the issuing enterprise is calculated in the same way as the total yield of the bond for its owner, but taking into account the additional expenses of the issuer associated with this issue.

Cb * = [ Nq* + (N – P)/ n] / [(N + 2 P)/3]

P – the amount received from the placement of one bond, taking into account the costs of the issue;

q* - coupon rate adjusted taking into account the “tax shield effect”;

Loan cost estimate

From a financial point of view, there are no fundamental differences between issuing bonds and receiving bank loan. In both cases, the price of the capital raised will be determined by the total profitability of the operation, which, in turn, depends entirely on the structure of the corresponding cash flow.

If the borrower does not incur additional costs associated with obtaining a loan, its cost does not depend on the repayment method and coincides with the interest rate on the loan, i.e. the profitability of this operation for the lender (taking into account the “tax shield effect”).

In the presence of additional costs, the cost of borrowed funds, generally speaking, changes with different loan repayment options. However, the possible difference is usually not too large (no more than 1% - 3% depending on the interest rate on the loan and the amount of costs) and in practice is not taken into account when choosing a debt repayment method.

Cost of placement of ordinary shares

Ordinary shares, unlike preferred shares, do not guarantee their owners the payment of dividends. In this regard, this type of financing is the most risky and, accordingly, the most expensive. The inherent uncertainty of common stock makes it difficult to price equity capital. There are several approaches to solving this problem, the most common of which are: the Gordon model (discounted dividend method, constant growth dividend model, etc.); financial asset pricing model (CAPM); assessment based on the yield of bonds of a given enterprise; using the price/earnings ratio (P/E ratio). The choice of assessment method depends on the available data and the degree of their reliability.

The main model for valuing ordinary shares is Gordon model (or constant growth dividend model). It can be used for enterprises that regularly pay dividends to owners of ordinary shares, constant or increasing according to the laws of geometric progression.

According to this model, the cost of ordinary shares for an enterprise is calculated using the formula:

WITHs =D 1 / Pm (1 –L) +g

C s is the cost of share capital,

Р m - market price of one share (placement price),

D 1 - dividend paid in the first year,

g – dividend growth rate,

L – rate characterizing emission costs (in relative terms).

If the amount of dividends is difficult to plan in advance, you can use financial asset pricing model (CAPM, Capital Assets Pricing Model ).

The advantage of this model is the simplicity of calculations and ease of interpretation of their results. However, for its full use it is necessary to have a mature financial market with a well-developed information infrastructure. It is also necessary to have reliable information about the results of the enterprise’s activities for previous years. CAPM is based on a number of assumptions and assumptions that characterize the stock market and its participants, and largely idealize the real situation. Among them the main ones are the following:

• When deciding to invest capital, investors take into account two factors - the level of profitability and the level of risk associated with a given financial asset. Moreover, their estimates of these parameters coincide;
• all investors have the same investment horizon;
• all investors have the same attitude towards risk (these are not investors - speculators);
• there are risk-free assets on the market and the opportunity to borrow and lend capital at a risk-free interest rate;
• the financial capabilities of investors do not influence their investment decisions;
• asset prices are not affected by the behavior of individual investors;
• There are no transaction costs in the market.

According to the CAPM model, stock returns are influenced by only one factor - the behavior of the stock market as a whole.

An indicator of the riskiness of an individual stock is the Beta coefficient (B), the main tool of the CAPM model. Cost of capital received from the issue of ordinary shares Cs, is defined as the required return on placed shares, which, in accordance with the CAPM model, is calculated using the following formula:

E = f+B (E m - f),

Cs = E

E - required return on shares,

f is the return on the risk-free asset,

E m is the average return on the stock market.

To use this formula, there is no need to calculate the coefficient B, which characterizes the riskiness of shares, and the market index. All these indicators are calculated and provided by special rating agencies.

Bond Value Model

Companies that actively issue bonds and have accumulated a sufficiently long credit history can use a simpler method of valuing equity capital. By adding a risk premium to the total return on its YTM bonds, the company obtains the expected return on its common stock. The size of the premium is calculated based on the average market yield of shares E m and the average market yield of bonds E mb . The formula for calculating the cost of equity capital in this case is:

C s = YTM + (E m - E mb),

YTM is the yield to maturity of a bond loan, calculated over the full life of the bond.

EPS Model

This model for estimating the value of equity capital is based on earnings per share, and not on the amount of dividends paid. According to this model, the cost of capital is determined by the formula:

C s = EPS / P m ,

where EPS is the amount of earnings per share,

Р m is the market price of one share.

Valuation of retained earnings

The net profit of an enterprise belongs to its owners - shareholders. By refusing to receive dividends and agreeing to reinvest their profits, shareholders expect to receive income that is at least as good as what they previously received. The rate of return on the enterprise's ordinary shares will be the price of its retained earnings. Since retaining profits does not require any additional costs, this value is not adjusted to the amount of enterprise costs associated with the issue of shares. Accordingly, when determining the price of equity capital using the Gordon model, the expression for calculating the value of retained earnings will take the following form:

With p = D 1 / P m + g

When using other methods, emission costs are not taken into account and the calculation formulas do not undergo any changes.

Average and marginal cost of capital

The total price of all sources is determined by the average profitability formula, that is, by the formula arithmetic average weighted. The average cost of raising capital thus obtained is denoted by WACC(Weighted Average Cost of Capital) and is calculated as follows:

WACC = ∑ C k w k , where

C k - cost of each source of funds,

w k is the share of this source in the total amount of invested capital.

In the general case, it is impossible to give exact relationships between the costs of various sources of capital, but the following chain of inequalities most often occurs:

Loan cost< Стоимость облигационного займа < Стоимость привилегированных акций < Стоимость нераспределенной прибыли < Стоимость обыкновенных акций

Thus, an increase in the share of debt financing within reasonable limits can lead to a decrease in the overall price of capital raised.

It should be borne in mind that the WACC value characterizes the average price of funds not already available to the enterprise, but additionally attracted to finance future projects. The following rule is usually true: the cost of capital increases as the need for it increases. This is due to the fact that increasing the volume of borrowed funds increases the financial risk associated with this enterprise, and banks will provide a new portion of loans at a higher interest rate. The same consideration underlies the increase in the required return on shares and bonds of a new issue. In addition, the demand for these financial instruments is limited; in order to place new securities, the offered yield must be increased.

As a result, the concept arises marginal cost of capital , reflecting the fact that when a certain threshold volume is reached, the next attracted monetary unit will cost the enterprise more.

The WACC value is minimum acceptable rate of return on investment projects , in which the company intends to invest attracted capital and is often used as a discount rate when calculating investment performance indicators.

A peculiarity of the assessment of borrowed capital is that the issuing enterprise has the right to include the amount of interest payments within certain limits as expenses that reduce the income tax base. The resulting “tax shield” effect reduces the cost of capital for the issuer.

In accordance with Articles 265, 269 of the Tax Code of the Russian Federation, non-operating expenses that reduce the tax base include interest on debt obligations of any type, regardless of the nature of the credit or loan provided. In this case, accrued interest is recognized as an expense, provided that its amount does not deviate by more than 20% from the average level of interest charged on debt obligations issued in the same reporting period on comparable terms.

In the absence of comparable debt obligations, and also at the choice of the taxpayer, the maximum amount of interest recognized as an expense is taken equal to the refinancing rate of the Central Bank of the Russian Federation, increased by 1.1 times for a debt obligation issued in rubles, and equal to 15% for debt obligations in foreign currency.

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The marginal return of a factor is equal to the increase in the firm's total income resulting from the use of an additional unit of that factor. Thus, the marginal return to labor (MRPL) is equal to the firm's marginal revenue (MR) multiplied by the marginal product of labor (MPL).

A firm's marginal revenue represents the increase in revenue resulting from the additional production of one unit of output.

The marginal product of labor represents the increase in output resulting from the use of an additional unit of labor.

The value of the marginal profitability of labor shows what the attraction of one additional worker brings. However, hiring an employee simultaneously increases costs by the amount of the employee’s salary.

Consequently, the net effect of attracting an additional employee, which affects the firm’s profit, is equal to the marginal profitability minus the increase in the wage fund.

The rule of optimal hiring for a company is: expand the scale of employment as long as the marginal profitability of labor is above the wage level; reduce the number of employees as soon as the marginal return falls below the wage level.

Thus, the number of employees is optimal if the following condition is met:

Wage = marginal return to labor: W = MRPL

Wages as the price of labor. Labor is a factor of production, and wages - at the cost of using labor employee. There are nominal and real wages. Nominal wage is the amount of money received by an employee; real wage is the totality of goods and services that can be purchased with this money, taking into account its purchasing power.

In conditions of perfect competition, the price of labor is formed like the price of any other product. This means that all workers receive equal wages, which does not depend on which company they work for, and is perceived by the company as a predetermined value. Therefore, for an individual firm, the supply of labor is perfectly elastic. The wage level itself in conditions of perfect competition is maximum - the worker, according to the theory of marginal productivity, receives the full product of labor: MRC = w. Therefore, the firm's marginal labor cost is equal to wages. In conditions where the level of wages is not related to the behavior of the company, only the number of workers hired depends on the entrepreneur.

Under conditions of perfect competition, marginal revenue is equal to the output price: MR=P. If a firm maximizes profit, then it hires workers until the marginal return on labor is equal to wages (MRP = w), i.e., until the marginal return from using the factor (labor) is equal to costs associated with its purchase (i.e. wages).

Topic 4.2 Profit:

1) profit as the factor income of the entrepreneur;

2) profit distribution .

Profit as a factor income of an entrepreneur. Profit is the income of a company. An entrepreneur is more interested in the mass of profits - the gross profit received from the sale of all goods.

When calculating gross (total, total) profit, the amount of sales is first determined (cash income from the sale of all goods produced over a certain period, say, a year). This amount can be calculated by multiplying the average price per item by the total quantity of goods sold (TR = P x Q).

The gross profit mass PF is the difference between sales (TR) and total production costs (TC): PF = TR - TC.

Typically, the rate of profit refers to the annual rate of profit: the ratio of the profit received during the year to the total capital advanced.

Owners of capital naturally have a vested interest in increasing their wealth by increasing the rate of profit.

The size of the profit rate is determined by the main economic factor - the size of the profit mass. Anything that multiplies this mass directly affects the profitability of the business.

Profitability also depends on the structure of funds advanced for production, namely, on the share of expenses for remuneration of workers. Let us assume that two enterprises use the same amount of advanced capital. But in the first of them, relatively more funds were spent on hiring labor. Then it is here - all other things being equal - that more profit will be created, and therefore the rate of profit will be higher.

The annual rate of profit is affected by the turnover rate of funds spent on production. When this speed increases, the money spent by him, including those used for wages, is returned to the entrepreneur faster. In this case, with the same total amount of capital, production increases, profits increase, and, as a result, profitability increases.

Saving costs on means of production contributes to an increase in the rate of profit. Savings are achieved through the introduction of advanced equipment, technology and labor organization, by increasing the number of work shifts during the day, etc. As a result, the cost of production decreases and, accordingly, profits increase.

Finally, profit margins are affected by economies of scale. In practice, there is a tendency that expresses the advantages of large-scale production over small-scale production.

Profit distribution. The distribution of profits is shown schematically in Figure 1.1

Figure 1.1 - Gross profit distribution

First of all, amounts going “outside” are subtracted from the gross profit. This includes rent for the use of someone else's land or buildings (owned differently), as well as interest on borrowed funds. In addition, the company contributes taxes to the budget of the state and local authorities, invests funds in charitable and other funds. The remainder of the funds forms net profit. It is used for the production and social needs of the enterprise, including accumulation (expansion of production), environmental protection, training and retraining of personnel, social needs of the enterprise’s employees and other purposes.

Finally, from the net profit, the businessman receives the entrepreneurial income due to him personally. In a joint stock company, the part of the profit intended as personal income is distributed among all shareholders who contributed to the joint capital.

With the current distribution of gross profit in modern conditions, as its size increases, the property of entrepreneurs and the state increases, and it also becomes possible to increase the income that goes into personal consumption not only of the employees of each company, but also of other members of society who receive public benefits and various types of benefits from the state and enterprises.

Topic 4.3 Income from property:

essence and forms of credit;

formation of a market-type credit system in the Republic of Kazakhstan;

interest as factor income of the owner of capital;

land is the main factor of production in agriculture.

The essence and forms of credit. Credit is a form of movement of loan capital, i.e., monetary capital provided on loan. It expresses the relationship between lenders and borrowers, while ensuring the transformation of free money capital into loan capital.

Necessity b credit in a market economy is determined by the very nature of capital and the patterns of its circulation and circulation in the process of reproduction.

Modern production constantly needs to attract borrowed funds and transfer them from one sector of the economy to another. This is due to a number of factors at play:

1) there is always a gap in time from the moment of investment to the moment of return of funds advanced into production, due to the different duration of production cycles;

2) there is an objective need to minimize production and distribution costs through the optimal combination of enterprises’ own and borrowed funds;

3) in many sectors of the economy there is seasonality in production (agriculture, etc.);

4) very often there is a need for a one-time and large-scale investment of funds for the development, reconstruction or expansion of production in certain sectors of the economy.

The most concentrated expression of the essence of credit is its functions. In a market economy, credit performs the following fundamental functions:

1) credit performs the function of accumulation and mobilization of money capital, which historically made it possible to significantly expand the scope of social production;

2) the loan performs the function of redistributing monetary capital. Thanks to this, free funds of the population, enterprise profits and state income are converted into loan capital and, through the credit mechanism, redistributed on the basis of payment and repayment to the most profitable areas of production or the highest priority sectors of the national economy;

3) credit helps reduce circulation costs due to the replacement of cash in circulation with credit money - bills, checks and banknotes;

4) credit is an important means of accelerating the process of concentration and centralization of capital. It is actively used in competition, promotes the process of acquisition and merger of companies, thus acting as one of the factors in the transformation of individual enterprises into joint-stock companies and partnerships;

5) credit is used in a market economy as a tool for its regulation.

Credit regulation of the economy is a set of measures carried out by the state in order to optimize the volume and dynamics of credit, regulate the loan capital market and the country's economy as a whole. Since the commodity on the loan capital market is temporarily free funds, it is obvious that the temporary nature of the release of these funds also implies the temporary nature of their transfer. Thus, the repayment of loan capital is an objective process and is one of the main properties of a loan. The repayment of the loan presupposes its maturity, since the money is lent for a certain period.

Another feature of credit is that a credit transaction is always an operation based on trust, since one of the two parties involved must wait for the debt to be repaid. Therefore, the creditor has the right to demand more or less significant guarantees to the extent of his trust. This puts the material security of a loan among its main properties.

Due to the fact that borrowers use capital that does not belong to them, i.e., other people's money, in their own interests, in a market economy they inevitably must pay for the right to use the loan provided to them. This leads to another important property of a loan - its repayment. The loan is repaid through the loan interest, that is, that part of the profit that the borrower pays to the lender. Loan interest appears as an equivalent to the consumer value of a loan, generating the movement of funds in the loan capital market.

Any transaction in any market involves some kind of benefit. The profitability of a cash loan transaction is determined by the interest rate , which is the ratio of the amount of loan interest to the amount of loan capital. The interest rate depends on the relationship between supply and demand on the loan capital market, is a dynamic value and is determined by the specific economic situation.

Formation of a market-type credit system in the Republic of Kazakhstan. Currently, the concept of a credit system includes two aspects:

credit system as a set of credit relations, forms and methods of lending ( functional aspect);

credit system as a set of credit and financial institutions that accumulate free funds in the loan capital market and lend them out (institutional aspect).

In the first aspect, the credit system is represented by banking, commercial, consumer and other types of lending. All these forms of credit have their own specific features of credit relations and their inherent lending methods.

Relationships regarding credit are implemented by specialized credit organizations, which form the second aspect of understanding the credit system. In this aspect, the credit system is a set of financial intermediaries operating in the loan capital market.

The main players in the credit system in a market economy are banks. It should be noted that the credit system is a broader and more capacious concept than the banking system, which is only a collection of banks operating within a certain credit system.

The modern credit system is the main link in the loan capital market and consists in turn of the following main institutional groups (tiers):

central (issuing) bank;

banking system (commercial banks, savings banks, investment banks, mortgage banks, other specialized banks);

insurance sector (insurance companies, pension funds);

specialized non-banking financial institutions (investment companies, financial companies, charitable foundations, etc.).

In the Republic of Kazakhstan, as in most CIS countries, there is a two-tier banking system: the first level is the Central Bank - the National Bank of the Republic of Kazakhstan, and the second level is a network of commercial banks.

A commercial bank is a credit organization designed to attract funds and place them on its own behalf on the terms of repayment, urgency and payment.

The main purpose of the bank is to mediate the movement of funds from lenders to borrowers and from sellers to buyers. A characteristic feature of commercial banks is that the main goal of their activities is to make a profit (this is, in fact, the “commercial” basis of their existence in a market economy).

The National Bank is the bank that heads the country's credit system, has a monopoly right to issue banknotes and implements monetary policy in the interests of the national economy.

Let's consider the relationship between these subjects. The National Bank determines the monetary base. The National Bank can change the value of this indicator by conducting open market operations. Open market operations are the purchase or sale by the National Bank of government securities in the financial markets of the country. Buying them increases the money supply, and selling them decreases it. The National Bank determines the norm of required bank reserves. The ratio of required reserves to bank deposits affects the volume of money supply. The volume of money supply is also influenced by the proportion in which the population divides its money into cash and bank deposits.

Interest as a factor income of the owner of capital. Capital is a material factor of production.

Capital, in the broad sense of the word, is any resource created for the purpose of producing more economic goods.

There are two main forms of capital - physical (tangible) capital (machines, buildings, structures, raw materials, etc.) and capital in value form.

Physical capital is, in turn, divided into fixed capital, which includes real durable assets such as buildings, structures, machinery, equipment and working capital spent on the purchase of funds for each production cycle: raw materials, basic and auxiliary materials.

A return on capital will be generated only if the owner of the capital transfers it for productive use to an entrepreneur (or becomes an entrepreneur himself). In this case, capital lent for a time must be returned incrementally. This increase, returned to the owner of capital, is called interest. Interest is the price paid to the owner of capital for the use of his funds over a certain period of time. The analysis usually considers capital exclusively in monetary form, implying that money is used to buy physical capital.

The interest rate depends on the supply and demand for borrowed funds. The demand for borrowed funds depends on the profitability of entrepreneurial investments, the size of consumer demand for credit and demand from the state, organizations and institutions.

There are nominal and real interest rates. The nominal rate shows how much the amount that the borrower returns to the lender exceeds the amount of the loan received. The real rate is the interest rate adjusted for inflation, i.e. expressed in monetary units of constant purchasing power. It is the real rate that determines decisions about the feasibility (or inexpediency) of investments.

Land is the main factor of production in agriculture. The peculiarity of land as an economic resource is its limitation. Unlike capital, land is immobile.

Factors affecting land supply are fertility and location. Therefore, when we talk about limited land, we mean land of a certain quality located in a certain place. Naturally, the amount of good land around a particular large city or even an individual farm is doubly limited: both in quality and in quantity.

Fertility, for example, depends on the quality of the soil, the climate, the nature of the machinery used, the labor skills and production experience of those who work the land, etc.

Economic rent is payment for a resource whose supply is strictly limited. Land rent is a special case of economic rent. The word "rent" translated from French (French rente from Latin reddita) means "given away." The etymology of this word thus reproduces the fact of the transfer of part of the production (or income) produced by the farmer to the owner of the land. Land rent is a payment for the use of land and other natural resources, the supply of which is strictly limited. The supply of land and other natural resources acts as a stock, rent as a flow.

5 Introduction to Macroeconomics

Topic 5.1 National economy:

1) national economy as a system;

2) characteristics of macroeconomic indicators;

National economy as a system. On a national scale, the economy is characterized as a macrosystem. Its main elements are:

firstly, total production - the total set of enterprises that create all the variety of goods;

secondly, the total social product is the entire sum of goods (products and services) produced in the country over a certain period;

thirdly, aggregate needs - the total sum of the needs of all members of society.

Now we have to figure out how all the elements of the macrostructure are interconnected.

First of all, there is a direct connection between them. It consists in the fact that social production acts to create an aggregate social product that satisfies all the needs of society.

However, there is also feedback. It manifests itself in the fact that increased aggregate needs influence changes in the structure of the aggregate social product, which allows for structural changes in social production.

Clarification of these forward and backward connections allows us to discover the main goal of macroeconomic regulation. Its goal is to constantly maintain national economic proportionality. We are talking about two interrelated relationships.

Macroeconomic demand- this is the amount of money that members of society are willing to spend on the purchase of goods and services to satisfy all needs. The volume of aggregate demand depends on the following factors:

price level;

income of the population;

distribution of income for consumption (current demand) and accumulation (demand deferred for the future);

taxes (part of income given to the state);

government procurement (state demand);

offers of money from credit institutions.

Macroeconomic proposal represents the sum of goods and services that their manufacturers and resellers sell to all customers. The volume of aggregate supply is determined by the following factors:

market price level;

potential production volume in the country;

level of production costs;

commercial benefit of its release.

There are certain relationships between macroeconomic demand and macroeconomic supply. They act as end-to-end interdependencies. Thus, the structure of aggregate demand (the set of all paid needs) affects the composition of the aggregate supply (the set of all goods and services sold), and thereby affects the structure of national production (the sum of all industries and types of economic activity ultimately necessary to satisfy effective demand society). Feedback also operates: the structure of all production largely determines the structure of aggregate supply and, through the market, predetermines the entire diversity of consumer demand.

The “law of the market” ensures equality of supply and demand volumes (which means economic crises are impossible), balance of savings and investments, and full employment of the labor force (unemployment is excluded). This is how - purely theoretically, speculatively - the neoclassics solved the problem of achieving stable (proportional) development of a market economy.

Characteristics of macroeconomic indicators. To measure the results of the functioning of the national economy, various macroeconomic indicators are used in theory and economic practice.

A number of such indicators are designed to assess the value of the total volume of national production. These include gross social product (GSP), final social product (FSP), net social product (NSP), net national product (NNP), gross domestic product (GDP), national income (NI), personal income ( LD), intermediate product (IP)

The relationship between various macroeconomic indicators can be presented as follows:

VOP-PP = KOP; KOP-A = CHOP = ND = FN + FP + CHE

In economic theory and statistics of foreign countries, indicators calculated on the basis of the system of national accounts are used to characterize the final results of annual production. The standard system of national accounts, developed by the UN Statistical Commission, has been used in world practice since 1953. Currently, national accounts are compiled in more than 100 countries around the world. In Kazakhstan, the national accounting system was introduced in 1993.

The following macroeconomic indicators are calculated on the basis of the SNA:

Gross National Product, representing the market value of all final goods produced in the country during the year. It is close in its economic meaning to the CPC indicator, but exceeds it by the cost of non-material production services.

Gross domestic product. This indicator is a kind of modification of GNP, but unlike the latter, it covers the results of activities in the territory of a given country of all economic entities, regardless of their nationality. The difference between GNP and GDP is twofold. On the one hand, when calculating GDP, the amount of income from the use of the resources of a given country abroad (wages, interest, dividends, etc.) is subtracted from GNP. On the other hand, when calculating GDP, similar income of foreigners received in a given country is added to GNP . For example, dividends received by foreign investors are included in the GNP of their country of residence and in the GDP of the country in which the shares of corporations are acquired by foreigners.

Net national product represents the amount of final products and services remaining for consumption after the replacement of decommissioned equipment. It is less than GNP by the amount of depreciation charges.

National income characterizes the amount of income of all suppliers of production resources with the help of which private enterprise is created. The only component of NNP that does not reflect the current contribution of economic resources is indirect business taxes. Therefore, the value of the latter, when calculating ND, is subtracted from the monetary volume of NNP.

Personal income shows how much money goes for personal consumption of the population, and as such reflects the redistribution processes in the ND movement. When calculating personal income, corporate income taxes, the volume of their retained earnings and the amount of social insurance contributions are subtracted from personal income, but transfer payments to the population (pensions, scholarships, benefits) are added.

To characterize the income that the population can spend at their own discretion, an indicator such as disposable income

Fundamentals of Economics educational and methodological complex of disciplines for the bachelor's training program in the direction of "Economics"

Training and metodology complex

Russian Economic Academy named after G. V. Plekhanov world economy educational and methodological manual

Educational and methodological manual

BOOK FOUR

INCENTIVE TO INVESTMENT

I define with the price of his offer. ultimate efficiency

. It follows that incentive to invest depends on

It's important to understand

The volume of investment is influenced two types of risk A. The first one is

lender's risk third type of risk

the future influences the present

CHAPTER 15

BOOK FIFTH

CASH WAGES AND PRICES

CHAPTER 20 Busy Function

There are two reasons why the replacement of the ordinary supply curve by an employment function is in complete agreement with the methods and purposes of this book. Firstly , occupancy function expresses the phenomena that interest us in the units we have chosen without involving any other units of measurement, the quantitative determination of which is doubtful. Secondly , this function is more suitable than the usual supply curve for analyzing the problems of industry and production as a whole, as opposed to the problems of a particular industry or an individual company, for which external conditions are assumed to be given and unchanged.

Thus, inevitable price volatility cannot affect the activities of entrepreneurs, but only funnels existing random wealth into the pockets of a lucky few. This fact has gone unnoticed in some contemporary debates about price stabilization policies. In a society subject to change, such a policy cannot be entirely successful.

We have shown that if effective demand is insufficient, then underemployment occurs in the sense that there are unemployed people who would be willing to work for less than the existing real wage. As effective demand increases, employment increases while maintaining existing real wages or even lowering them, until a point is reached where there is no longer a surplus of labor to be used based on the then established level of real wages. In other words, it will no longer be possible to obtain an additional number of people unless money wages begin to rise faster than prices.

However, the significance of this finding is limited by a number of practical caveats.

1. rising prices may mislead entrepreneurs and induce them to increase employment beyond the level at which their individual profits, measured in units of output, become maximum. In other words, at the new price level, they may underestimate the marginal cost of use.

2. an increase in prices will lead to a redistribution of income to the benefit of the entrepreneur and the disadvantage of the rentier, and this may affect the propensity to consume. However, this process can not only begin when full employment has already been achieved, but will be continuous throughout the time that costs increase.

The visible asymmetry between Inflation and Deflation may cause some confusion. While deflation of effective demand below the level required for full employment will reduce both employment and prices; inflation above this level will only affect prices. This asymmetry is simply a reflection of the fact that wage earners are always able to refuse work on a scale at which the real wage falls below the marginal burden of labor for a given amount of employment; they are unable to demand work on a scale at which the real wage does not exceed the maximum burden of labor for a given level of employment.

CHAPTER 21 Price Theory

I consider it wrong to divide Economic Science into the Theory of Value and Distribution, on the one hand, and the Theory of Money, on the other. The true boundary must lie between the Theory of a Single Industry or a Firm, which examines the remuneration of factors and the distribution of resources between various ways of using a given quantity of them, and the Theory of Production and Employment in general.

Possible complications that will actually affect the course of events:

1) effective demand will not change in exact proportion to the quantity of money;

2) since resources are not homogeneous, there will be diminishing rather than constant returns as the degree of their use gradually increases;

3) since resources are not equal in their degree of efficiency, the supply of some goods will be inelastic when there are still unused resources suitable for the production of other goods;

4) the wage unit will tend to increase before full employment of all resources is achieved;

5) the remuneration of the funds included in the marginal costs of production will not change in the same proportion.

The increase in effective demand will be spent partly on increasing the rate of resource utilization and partly on raising the price level. Thus, instead of constant prices in the presence of unused resources and prices rising in proportion to the amount of money in conditions of full use of resources, we practically have prices gradually increasing as the employment of factors increases. That's why Price Theory , i.e. Analyzing the relationship between changes in the quantity of money and changes in the price level in order to determine the elasticity of prices in response to changes in the quantity of money must address the five complicating factors listed above.

1. A change in the quantity of money affects the amount of effective demand by influencing the interest rate. If the matter were limited to this, then the quantitative effect could be derived from three elements: a) the schedule of liquidity preference; b) a graph of marginal efficiency, and c) an investment multiplier.

2. The presence of diminishing or constant returns depends on whether whether employees are remunerated strictly in proportion to their productivity. Thus, an increase in output will be combined with a rise in prices, regardless of even any change in the unit of wages.

3. If there were perfect equilibrium in the relative quantities of specialized unused resources, then the point of full use would be reached for all of them simultaneously. As production volume increases, a series of bottlenecks will arise, when the supply of certain goods is no longer elastic, and their prices begin to rise to the level necessary to switch demand to other goods and services.

The general price level will not rise very much as output increases as long as there are still efficient unused resources of all kinds. But as soon as production volume increases so much that bottlenecks begin to appear, we can expect a sharp rise in prices for some goods.

4. The upward trend in the wage unit may appear even before full employment is achieved. A proportion of any increase in effective demand will be absorbed by the upward trend in the wage unit.

Thus, in addition to the final critical point of full employment, with the achievement of which money wages must rise in response to an increase in effective demand expressed in monetary units in the same proportion as the prices of goods purchased with wages increase, we have a consistent series earlier semi-critical points, upon reaching which an increase in effective demand will also cause an increase in money wages, although not in exact proportion to the increase in the prices of goods purchased with wages.

5. The remuneration rates of different factors, expressed in terms of money, will exhibit varying degrees of inflexibility, and these factors may also have different elasticities of supply in response to changes in the monetary remuneration offered. If not for this, then the price level would be determined by two factors: the unit of wages and the size of employment. The most important element of the marginal cost of production, which will vary in a different proportion than the unit of wages and fluctuate over a much wider range, is the marginal cost of use.

The long-run relationship between national income and the quantity of money will depend on liquidity preferences, and the stability or volatility of prices in the long run will depend on the intensity of the upward trend in the unit of wages relative to the rate of growth in the efficiency of the production system.

BOOK FOUR

INCENTIVE TO INVESTMENT

CHAPTER 11 Marginal efficiency of capital

I define marginal efficiency of capital as a value equal to the discount rate that would equalize the present value of a series of annual incomes expected from the use of capital assets during their service life, with the price of his offer. If for some time there is an increase in investment into any given type of capital, its ultimate efficiency decreases as investment increases , - because the expected income will fall with an increase in the supply of this type of capital, because,

llllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllan increased load on the capacity for the production of the corresponding capital goods will causing an increase in their supply price. Capital efficiency depends on the expected return on capital, not just its current return.

Thus, for each type of capital, we can construct a graph showing how much investment in this type of property must increase during a given period in order for its marginal efficiency to fall to any given value. It follows that incentive to invest depends on schedule of investment demand and the interest rate.

It should be noted that the expectation of a fall in the rate of interest will have a downward effect on the marginal efficiency of capital schedule, since it means that output from equipment manufactured today will have to compete for some part of its life with output from equipment that is efficient and has lower net revenues. This expectation will not have a large depressive effect, since ideas about future interest rates on loans of different terms will be partly reflected in the aggregate of rates in force today. But some depressive effect is still possible, since products released towards the end of the service life of currently produced equipment may will have to compete with products produced by newer equipment corresponding to a lower rate of return due to the decline in the rate of interest in the periods following the end of the service life of the equipment currently produced.

It's important to understand the dependence of the marginal efficiency of a given capital fund on changes in expectations, for it is precisely this dependence that mainly determines the susceptibility of the marginal efficiency of capital to the rather sharp fluctuations that explain the economic cycle. A series of successive rises and falls can be described and analyzed in connection with the fluctuations of the marginal efficiency of capital relative to the rate of interest.

The volume of investment is influenced two types of risk A. The first one is risk of the entrepreneur or borrower , arising from doubts about whether he will actually be able to receive the expected income he is counting on. If a person puts his own money at stake, then we are talking only about this type of risk.

Where there is a system of borrowing and lending money, by which I mean the making of loans on real security or on the good name of the borrower, there is a second kind of risk - lender's risk . It can be associated either with doubt about the debtor's honesty, i.e. with the danger of deliberate bankruptcy or other attempts to evade fulfillment of obligations, or with the possibility that the amount of security will be insufficient, i.e., with the danger of involuntary bankruptcy due to unjustified calculations of the borrower. One could also add here third type of risk - one that is associated with the possible a change in the value of a unit of the monetary standard, as a result of which a money loan is to a certain extent a less reliable form of wealth than real property. The first type of risk represents, in a certain sense, necessary social costs, although they can be reduced both through mutual equalization of risk and by increasing the accuracy of foresight. But the second type of risk is a net addition to the cost of the investment that would not exist if the lender and borrower were one and the same entity.

The schedule of the marginal efficiency of capital is of fundamental importance, because it is mainly through this factor (much more than through the rate of interest) that the expected the future influences the present. The erroneous definition of the marginal efficiency of capital as the current income from capital equipment (this would be true only in a static situation where there is no changing future that could affect the present) led in theory to a severing of the connection between the present and the future. Even the rate of interest is essentially a short-term phenomenon; and if we reduce the marginal efficiency of capital to the same situation, we deprive ourselves of any possibility of directly including the influence of the future in the analysis of the existing equilibrium.

It is precisely because of the existence of long-life equipment in the field of economics that the future is linked to the present. Therefore, our general principles of thinking correspond to the conclusion that calculations for the future must have an impact on the present through the prices of demand for equipment with a long service life. The scale of investment depends on the relationship between the rate of interest and the schedule of the marginal efficiency of capital, which relates this value to the size of current investments, and the marginal efficiency of capital reflects the relationship between the supply price of capital property and its expected income.

1. 
   Marginal cost of capital % 0.965 2 Marginal efficiency of capital 7.091 Assessment of the marginal efficiency of capital indicator indicates the strengthening of the financial condition of the organization
2. 
   The assessment of the cost of capital should be completed by analyzing the marginal efficiency of capital, which is determined by the ratio of the increase in the level of return on invested capital to the increase in the weighted average cost
3. Modern trends in measuring the performance and business activity of companies
   JM Keynes on the marginal efficiency of capital connecting expected future income from investments and the current supply price of capital
4. Borrowing policy
   Taking into account the amount of equity capital in the coming period and the calculated financial leverage ratio, the maximum amount of borrowed funds is calculated to ensure the effective use of equity capital and ensure sufficient financial stability of the enterprise.
5. Credit policy
   Taking into account the amount of equity capital in the coming period and the calculated financial leverage ratio, the maximum amount of borrowed funds is calculated to ensure the effective use of equity capital. The effect of financial leverage is the increment
6. Ways to form an optimal capital structure for an agricultural enterprise
   Thus, the decision to attract borrowed funds by an enterprise should be made provided that the interest rate corresponds to its maximum value and with a positive value of the indicator of the effect of financial leverage. This will allow obtaining additional income... In order to simplify and speed up the decision-making process on the effective capital structure of an agricultural enterprise based on research materials, a matrix for choosing the capital structure according to
7. Principles for optimizing the capital structure of an agricultural enterprise
   So, the decision to attract borrowed funds by an enterprise should be made provided that the interest rate corresponds to its maximum value determined by formula 14 and with a positive value of the indicator of the effect of financial leverage. This... In order to simplify and speed up the decision-making process on the effective capital structure of an agricultural enterprise, we are based on research materials developed a capital structure selection matrix
8. Financial reporting for enterprise management
   At this stage, the dynamics of borrowed capital are analyzed, its composition and structure, the efficiency of use based on the calculation and analysis of the turnover ratio. The result... According to the reporting data, the maximum financial leverage ratio is calculated, an assessment of financial stability is given taking into account the maximum volume of debt financing
9. Optimization of the enterprise capital structure
   In accordance with this, the maximum share of borrowed capital in the structure of financing sources also changes. These cycles will be repeated until the company reaches... Thus, the optimal capital structure is a necessary condition for the effective operation of the enterprise. Optimization of the capital structure should be carried out taking into account the influence
10. Estimation of the cost of an investment project
    Determining the investment problem is associated with the assessment of various options taking into account lost opportunities and is carried out on the basis of such indicators as marginal investment necessary investment for the increase in an additional unit of output marginal cost marginal rate of return net increase in income as a result capital investments expressed as a percentage per monetary unit of investment, the marginal net return on investment is the difference between the marginal rate of return on the project and the loan interest rate. Determining the nature of investments requires their classification by... The following indicators are important for management: profitability based on the current value of assets: net profit margin; gross profit margin analysis of current costs analysis of gross income efficiency of use of material and labor resources analysis of cash income from investments, etc. Lenders... Investors require an assessment of the rate of return on equity earnings and cash flow per share dividend coverage ratio price-earnings ratio for
11. Optimization of the balance sheet structure as a factor in increasing the financial stability of the organization
    Knowledge of the limiting limits of changes in sources of funds to cover capital investments in fixed assets or inventories... The financial stability of an organization characterizes its financial position from the standpoint of the adequacy and efficiency of using equity capital. Indicators of financial stability, together with liquidity indicators, characterize the reliability of the company. If financial stability is lost.. It is influenced by various factors the position of the organization in the commodity market production and production of cheap, in-demand products its potential in business cooperation the degree of dependence on external creditors and investors the presence of insolvent debtors the efficiency of economic and financial transactions, etc. In relation to the organization, financial stability depends on
12. Movement of capital
    International movement of capital is the cross-border movement of one of the most important factors of production resulting from its historically established or acquired concentration in individual countries, creating economic prerequisites for more efficient production of goods and services in other countries. When capital is exported abroad, it is already transferred... Among the reasons for capital migration are: also highlight the different marginal productivity of capital determined by the interest rate; capital moves from where its productivity is low to where
13. Assessing the efficiency of using financial resources of organizations in the regional agricultural sector
    At the same time, the duration of one turnover of borrowed capital increases, which negatively affects the financial position of the organization. One of the most important characteristics of the financial condition of an enterprise... One of the most important characteristics of the financial condition of an enterprise and the efficiency of managing its financial resources is the stability of operations in the light of a long-term perspective. It is associated with the structure ... The value of the maximum limits for changes in sources of funds to cover capital investments in fixed assets or inventories
14. Theoretical foundations of bank liquidity management
    The Bank of Russia, with the help of which the liquidity of a commercial bank is maintained 12, p. 454 The effectiveness of the supervisory functions of the Bank of Russia determines the degree of interaction of the state supervisory authority with commercial banks in... The main elements of liquidity management are analysis of the state of instantaneous current and long-term liquidity, drawing up a short-term liquidity forecast, conducting analysis liquidity and the use of developments that are negative for the bank, the state of the market, the position of borrowers and creditors, determining the bank's need for liquid funds, determining the excess liquidity deficit and its maximum permissible values, assessing the impact on the liquidity state of transactions in foreign currency, determining the maximum ... The bank's ability to meet its obligations is affected characteristics of the state and changes in the resource base return of assets financial result of operations the amount of the bank's own capital as well as the quality of bank management management which at certain moments can play a role in
15. The concept, essence and meaning of the financial results of an enterprise
    As you know, a company’s costs are divided into fixed and variable. Marginal costs represent additional variable costs associated with each additional unit of output of product sales... In this case, taxable profit increases by the amount of interest payments received on equity capital, which is reflected in the profit statement In foreign practice the term costs of lost opportunities is used... In Indicators for assessing the effectiveness of an organization Baltic Humanitarian Journal 2014. No. 2. P 57-61. 7. Kurilov K Yu Kurilova
16. Specifics of forming an investment portfolio for a construction company
    The success of an investment project in the construction industry is determined by many factors, including an effective system of planning and forecasting of individual stages of construction, the quality and efficiency of the investment project, the optimality of sources of financing. In our opinion, there cannot be clearly defined boundaries... It should be understood as acceptable in a certain time period for of a specific company, the structure and cost of probable sources of its financing and the maximum price that this company is willing to pay for them 5, p. 281 Since the investor is founding... In conditions of a constant shortage of its own sources of financing and a lack of working capital, a construction company needs to attract a large share of borrowed capital and state support in creating production and social infrastructure Fig. 3. Scheme selection factors
17. On the issue of managing organizations’ own and attracted financial resources
    Financing through borrowed capital allows you to increase the volume of economic activity, ensures an increase in the efficiency of using equity capital, which ultimately allows you to increase the market value of the organization The process of managing the attraction of borrowed financial resources... The purpose of this stage is to identify the size of the composition and forms of attracting borrowed sources, as well as assessing the effectiveness their use The obtained results of the analysis serve as the basis for making decisions on the advisability of using borrowed funds... At the third stage, the maximum possible volume of attraction of borrowed sources of financing is determined. The maximum volume of this attraction is determined by the following conditions
18. Financial security of the company: analytical aspect
    R S Financial security defines the limiting state of financial stability in which an enterprise must be in order to implement its strategy, characterized by the ability... N I Financial security of an enterprise is protection from possible financial losses and bankruptcy, achieving the most efficient use of corporate resources Source 1-3, 6, 16-19 Table 2. System of indicators and their calculations... Equity turnover ratio 5.59 2.67 3.13 Debt capital turnover ratio 5.6 1.46 0.86 Accounts receivable turnover ratio
19. Tax benefits for corporate income tax as a tool for stimulating investment activity
    To do this, it is advisable to increase the period for granting the investment tax credit since the deadline for the investment tax credit established by the current tax legislation is too short for modernization and for such a period not... Often the budgetary effect of providing a particular tax benefit is assessed only at the stage of its introduction and subsequently the value the corresponding losses of budget revenues are not monitored and the effectiveness of achieving the goal for which the benefit was provided is not analyzed or is not analyzed carefully. Using... Dynamics of investment in fixed capital 2004-2016 billion rubles Source compiled by the author References 1. Keynes J General theory
20. Investment efficiency assessment
    The choice of a differentiated discount rate in the process of bringing the amount of invested capital and net cash flow to the present value for various real investment projects Individual investment projects differ as... An enterprise can set as a standard the indicator of the marginal internal rate of return and investment projects with a lower value will be automatically rejected... An enterprise can set the marginal internal rate of return as a standard and investment projects with a lower value will be automatically rejected as not meeting the requirements for the efficiency of real investment The page was helpful