Question

The New York State Electric and Gas Corporation filed a request for a 10.7% increase in electric revenues. The reasons given to justify the increase were that the value of the firm’s plant and equipment had increased by $140 million, operating costs had increased, and investors required a higher rate of return.

a. Why should an increase in the value of the fi rm’s plant and equipment result in an increase in the amount of revenue allowed by the Public Service Commission?
b. Why should an increase in operating costs have the same effect?
c. Why should the attitude of investors regarding what they require as a rate of return be relevant here?

Answer 1

Sales : sales is considered as a coincident indicator since they are influenced by various other factors like income and unemployment. Both lead and lag indicators will have combined effect on sales. Hence sales is a coincident indicator.

New order for plants and equipments: this is a lead indicator since me order for plants and equipments will be placed only/when the business is on the growth trend. Hence this is a lead indicator.

Average work week : this is a llead indicator since producers tends to increase the number of hours worked before any future hiring. This can help us to estimate the flow of business for the past weeks. Hence it is a lead indicator.

New consumers goods order: this is a lead indicator since it implies that when there is a change or increase in new orders then positive changes in production will take place. Hence this is a lead indicator.

Unemployment rate : this is a lag indicator since employment will tend to increase only after an upturn in general economy. Until then unemployment rate cannot be inferred to conclude out findings.

Hence