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Cutoff period is a term in finance. In capital budgeting , it is the period (usually in years) below which a project's payback period must fall in order to accept the project. Generally it is the time period in which a project gives its investment back if a project fails to do so the project will be rejected.
In business and for engineering economics in both industrial engineering and civil engineering practice, the minimum acceptable rate of return, often abbreviated MARR, or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other projects. [1]
The cutoff grade can be determined through a variety of methods, each of varying complexity. Cutoff grades are selected to achieve a certain objective, such as resource utilization or economic benefit. Dividing these objectives even further gives way to specific goals such as the maximization of total profits, immediate profits, and present value.
Payback period in capital budgeting refers to the time required to recoup the funds expended in an investment, or to reach the break-even point. [1]For example, a $1000 investment made at the start of year 1 which returned $500 at the end of year 1 and year 2 respectively would have a two-year payback period.
A time-series path in the neoclassical model is a series of these one-period utility maximizations. In contrast, a recursive model involves two or more periods, in which the consumer or producer trades off benefits and costs across the two time periods. This trade-off is sometimes represented in what is called an Euler equation.
The basic assumptions are as follows: [4] The island is cut off from the rest of the world (and hence cannot trade) There is only a single economic agent (Crusoe himself) All commodities on the island have to be produced or found from existing stocks; There is only one individual – Robinson Crusoe himself.
Over the period since the Industrial Revolution, technological progress has had a much larger effect on the economy than any fluctuations in credit or debt, the primary exception being the Great Depression, which caused a multi-year steep economic decline.
In each period , he receives an income , which he can either spend on a consumption good or save in the form of an asset that pays a constant real interest rate in the next period. [ 22 ] The utility of consumption in future periods is discounted at the rate β ∈ ( 0 , 1 ) {\displaystyle \beta \in (0,1)} .