The Consideration of Risk in Project Selection

This paper is concerned with attempts that have been made to incorporate measures of risk in the selection of financial investments. The methodology that is developed here has been primarily aimed at the evaluation of capital investment projects, but the concepts and ideas are also relevant in the financial investment field. Implicit in all this discussion is the fact that when information is obtained in order to calculate an internal rate of return or a net present value, the figures put into the calculation are estimates rather than precise and exact quantities. In some instances the estimates may be felt to be very good, whilst in other cases it may be felt that there is a wide range of possible deviations. Hence the evaluation of any project or projects should, correctly, be described not by a single criterion but by a range of possible values, some of which are judged to be more likely than others. Having said this, there now comes the need to decide upon the method by which choice is to be exercised. Should it be by the choice of the highest average value of the criterion, or by choosing some more conservative rule?

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Capital Finance Decisions for project managers - A reflection on current methods

Acta Commercii ◽

10.4102/ac.v3i1.38 ◽

2003 ◽

Vol 3 (1) ◽

Cited By ~ 1

Author(s):

C. Scheepers

Keyword(s):

Capital Investment ◽

Net Present Value ◽

Project Managers ◽

Internal Rate Of Return ◽

Present Value ◽

Senior Managers ◽

Capital Projects ◽

Financial Investment ◽

Capital Budget ◽

The Board Of Directors

This paper evaluates some of current financial investment selection methodologies for capital projects. The proc ess (and criteria) of capital investment decisions is reviewed. The capital budget for most organisations is prepared annually by a committee of senior managers who then present it for approval by the board of directors. Investment proposals are usually subjected to two financial tests, "payback" and "internal rate of return (IRR)". The management committee usually decides on the tests and acceptance criteria vary according to the type of project. Some shortcomings of these most frequently used current tests (Payback & IRR) are identified and it is recommended that the Net Present Value (NPV) should be used as the primary method for analysing, comparing and selecting capital projects.

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Evaluation of Investment Projects: A Case from Turkish Cement Sector

International Conference on Eurasian Economies 2016 ◽

10.36880/c07.01587 ◽

2016 ◽

Author(s):

Miyase Karabulut ◽

Sıtkı Sönmezer ◽

Vedat Zeki Yenen ◽

Zeynep Emir

Keyword(s):

Qualitative Research ◽

Net Present Value ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Projects ◽

Preliminary Results ◽

Internal Rate ◽

Exclusive Or

Capital budgeting is crucial for firms that have projects to evaluate especially when the projects are mutually exclusive or financing is scarce. The aim of the study is to determining the most widely used methodologies in capital budgeting decisions and their effectiveness. A qualitative research will provide cement sector specific examples in assessing industry projects and compares the methods of Net Present Value, İnternal rate of Return, Pay-back period, discounted pay-back period and MIRR. Each method is briefly discussed and its drawbacks and advantages are mentioned in detail. Other sectors are also examined in terms of capital budgeting. Our preliminary results indicate that net present value method dominates capital budgeting decisions in the sectors under study.

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Risk Manage Capital Investment Decisions: A Lease vs. Purchase Illustration

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i3.1031 ◽

2011 ◽

Vol 25 (3) ◽

Author(s):

Thomas L. Zeller ◽

Brian B. Stanko

Keyword(s):

Capital Investment ◽

Net Present Value ◽

Investment Decisions ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Wealth Creation ◽

Font Size ◽

Present Value ◽

Internal Rate

This paper demonstrates how to build risk into capital investment decisions.  We illustrate how to combine distribution theory, technology, and a business professional’s skills and insight into a capital investment analysis.  In addition, we show how management can approximate the risk of each cash flow estimate and display the overall capital investment results.  This framework is extended by showing how a mutually exclusive decision can be improved, using a lease versus purchase example.<a style="mso-footnote-id: ftn1;" name="_ftnref1" href="http://journals.cluteonline.com/index.php/JABR/author/saveSubmit/#_ftn1">[1]</a>  An Excel template is readily available from the authors allowing a hands-on application of the framework presented in this paper.  In addition, this paper positions the reader to comfortably use more advanced analytics, such as Monte Carlo simulation, a tool that is readily available in commercial software applications.<div style="mso-element: footnote-list;"> <hr size="1" /><div id="ftn1" style="mso-element: footnote;">This paper focuses on the application of net present value.  The advantage of using net present value in a capital budgeting decision is that it shows the potential stakeholder wealth creation and wealth destruction.  An internal rate of return analysis is intentionally left out of this paper.  According to Brealey, Myers and Allen, Principles of Corporate Finance, New York, NY: McGraw-Hill/Irwin 2006, pp. 91-99, internal rate of return should not be used to evaluate mutually exclusive capital investments.  </div></div>

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EVALUATION OF INVESTMENT PROJECTS IN CASE OF CONFLICT BETWEEN THE INTERNAL RATE OF RETURN AND THE NET PRESENT VALUE METHODS

Ekonomika ◽

10.15388/ekon.2010.0.962 ◽

2010 ◽

Vol 89 (4) ◽

pp. 116-130 ◽

Cited By ~ 3

Author(s):

Jonas Mackevičius ◽

Vladislav Tomaševič

Keyword(s):

Net Present Value ◽

Investment Project ◽

Expected Profit ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Projects ◽

Internal Rate

Results obtained by employing the net present value (NPV) and the internal rate of return (IRR) methods allow to objectively determine the effectiveness and attractiveness of an investment project and to compare investment projects differing in scope, length or the amount of expected profit. While results obtained by the NPV and IRR methods normally correlate, contradictions are possible in individual cases. Such contradictions are called ‘conflict between the IRR and NPV methods’. The paper deals with the main characteristics of NPV and IRR, analysing the substance of the conflict and cases of its manifestation. A technique for the resolution of the NPV and IRR conflict is proposed.

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Methodical approaches to the assessment of investment attractiveness of agricultural enterprises

Scientific Messenger of LNU of Veterinary Medicine and Biotechnologies ◽

10.32718/nvlvet-e9313 ◽

2019 ◽

Vol 21 (93) ◽

pp. 63-69

Author(s):

R. M. Myniv

Keyword(s):

Cash Flow ◽

Net Present Value ◽

Cash Flows ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Projects ◽

Agricultural Enterprises ◽

Internal Rate ◽

Dynamic Methods

Evaluation of investment efficiency is central to the process of justifying and selecting possible options for investing in investment projects, and is therefore a key to successful implementation of investment activities of agricultural enterprises. The main directions of financing of investment projects of agricultural enterprises are: purchase or construction of unfinished construction objects, new construction, expansion of existing enterprises, reconstruction of existing enterprises and technical re-equipment of existing enterprises. Two main groups of methods of assessing the cost-effectiveness of investment projects have become most widespread: static and dynamic. Static methods involve the calculation of indicators based on undiscounted cash flows. Dynamic methods, on the contrary, take into account the change in the value of money over time and imply bringing the values of all cash flows to the same period by discounting or compounding. Dynamic methods for assessing the effectiveness of investment projects include the following basic methods that rely on most modern Ukrainian enterprises, such as net present value cash flow (NPV), internal rate of return (IRR), payback period (DPP) and project profitability index (PI). On their basis the basic methods of selection of investment projects of agricultural enterprises are formed. Net Present Value (NPV) calculation. is based on comparing what will be invested in the future with what is invested now. The Profitabale Index (PI) is directly related to net present value and is defined as the ratio of the discounted cash flow to initial investment. The IRR (Internal Rate of Return) is the discount rate at which the projected cash inflows are equal to the project's discounted cash flows. As indicators of the effect in calculating the overall efficiency of investments, it is advisable to use changes in the following values of growth: revenue from the sale of enterprise products; gross income; profit before tax; net profit; cash flow; clean products. Gross and net investment should be included in the costs. The use of qualitative methods in investment analysis is due to the following reasons: the subjectivity of the phenomena or characteristics studied; lack or lack of necessary information; inability to analyze objective and acceptable methods; lack of research object (to be created during project implementation). Quantitative methods for evaluating agricultural investment projects include methods of probability theory and mathematical statistics, as well as economic and statistical methods.

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Cost and Benefit Analysis of One Tambon One Product: A Case study of Rattan and Bamboo Wickerwork Products Group of Bantungfak, Thailand

Journal of Business and Economics ◽

10.15341/jbe(2155-7950)/07.10.2019/006 ◽

2019 ◽

Vol 10 (7) ◽

pp. 654-657

Author(s):

Pathompong Kookkaew ◽

Keyword(s):

Capital Investment ◽

Net Present Value ◽

Investment Decision ◽

Rate Of Return ◽

Cost Ratio ◽

Internal Rate Of Return ◽

Present Value ◽

Financial Return ◽

Internal Rate ◽

Cost And Benefit Analysis

The purposes of this research study were cost and benefits analysis of Rattan and Bamboo Wickerwork Products Group. Qualitative study was employed to collect and analyze data using in-depth interview. Interview questions were related to costs and benefit, and return on investment analysis — Net Present Value: NPV, Internal Rate of Return: IRR, Benefit and Cost Ratio: B/C Ratio at Discount Rate of 7% of 10 years of project life. The results reveal that Net Present Value (NPV) was 137,391 Baht, Internal Rate of Return (IRR) was 30.89%, Benefit and Cost Ratio (B/C Ratio) was 1.04. Financial return is in capital investment decision criteria.

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Selecting a Tax Rate for Use in Analyzing Forest Industry Capital Investment

Northern Journal of Applied Forestry ◽

10.1093/njaf/3.3.101 ◽

1986 ◽

Vol 3 (3) ◽

pp. 101-103 ◽

Cited By ~ 1

Author(s):

Bruce G. Hansen

Keyword(s):

Capital Investment ◽

Net Present Value ◽

Capital Budgeting ◽

Substantial Effect ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Performance ◽

Tax Rate ◽

Federal Income Tax ◽

Considerable Discussion

Abstract The tax rate utilized in capital budgeting studies has a substantial effect on investment performance as estimated by the net present value (NPV) and internal rate of return (IRR). Selecting the incorrect federal income tax rate can have a profound effect on investment decisions. Although there is currently considerable discussion in Congress about changing the present tax structure, the consequences of selecting an incorrect tax rate will prevail so long as there is a graduated schedule of any kind. North. J. Appl. For. 3:101-103, Sept. 1986.

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The Extent of Using Capital Budgeting Techniques in Evaluating Manager’s Investments Projects Decisions (A Case Study on Jordanian Industrial Companies)

International Journal of Economics and Finance ◽

10.5539/ijef.v9n12p175 ◽

2017 ◽

Vol 9 (12) ◽

pp. 175

Author(s):

Osama Samih Shaban ◽

Ziad Al-Zubi ◽

Ahmad Adel Abdallah

Keyword(s):

Net Present Value ◽

Research Study ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Projects ◽

Internal Rate ◽

Industrial Companies ◽

Accounting Rate

The aim of this research paper is to study the extent of using capital budgeting techniques on choosing the suitable project for investment. The current research study focused on capital budgeting techniques such as Net Present Value NPV, and Internal Rate of Return IRR, and Pay Back period PB, which is considered the main tools in the hands of decision makers in deciding the best possible alternative of investment. In order to achieve the purposes of the study a questionnaire have been created (based on Graham and Harvey survey in 2001), the aim was to cover most of the Jordanian industrial companies despite of their size and ownership in the current year 2017. Resolution data were analyzed using the statistical program SSPS. Finally, the study concluded that, 58% of Jordanian industrial companies use the Net Present Value, 22% use the Payback Period, 12% use the Internal Rate of Return, and the remaining used a combination of the Accounting Rate of Return, Profitability Index, and sensitivity analysis. The current research study is expected to assess management in choosing the best capital budgeting technique in the evaluation of its future investment projects.

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Is It Correct to Use the Internal Rate of Return to Evaluate the Sustainability of Investment Decisions in Public Private Partnership Projects?

Sustainability ◽

10.3390/su10124371 ◽

2018 ◽

Vol 10 (12) ◽

pp. 4371 ◽

Cited By ~ 1

Author(s):

Vicente De Albornoz ◽

Antonio Galera ◽

Juan Millán

Keyword(s):

Cash Flow ◽

Net Present Value ◽

Point Of View ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Economic Point ◽

Investment Projects ◽

Internal Rate ◽

Investment Criterion

Public Private Partnerships (PPP) are viewed by the private sector as investment projects. An investment criterion, such as the internal rate of return (IRR), widely used by practitioners, is thus necessary in order to determine if the opportunity is sustainable from an economic point of view and worth pursuing. However, a cash flow may have multiple IRRs—is it appropriate in the context of PPPs to use this criterion? This paper provides a clear proposition to determine the potential number of real positive IRRs a cash flow may have, depending on the number of sign variations and the value of the net present value (NPV) calculated with a discount rate equal to 0 (NPV(r = 0)). This proposition can sometimes be used when other tests (such as Norstrom’s Criterion) are inconclusive to determine if a cash flow has a single real positive IRR. The proposition is generally met by the typical cash flow of a PPP project, validating the use of IRR as an investment criterion.

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KEEFEKTIFAN HUMAN CAPITAL INVESTMENT DALAM PERSPEKTIF PENDIDIKAN BAGI TENAGA KEPENDIDIKAN DI UNIVERSITAS NEGERI YOGYAKARTA

Jurnal Akuntabilitas Manajemen Pendidikan ◽

10.21831/amp.v4i1.8201 ◽

2016 ◽

Vol 4 (1) ◽

pp. 77

Author(s):

Fitri Nur Mahmudah ◽

Lantip Diat Prasojo

Keyword(s):

Return On Investment ◽

Capital Investment ◽

Net Present Value ◽

Payback Period ◽

Cost Ratio ◽

Internal Rate Of Return ◽

Present Value ◽

Benefit Cost Ratio ◽

Model Discrepancy ◽

Benefit Cost

Penelitian ini bertujuan untuk menganalisis 1) payback period (PP), 2) benefit/cost ratio, 3) return on investment (ROI), 4) net present value (NPV), dan 5) internal rate of return (IRR) dalam perspektif pendidikan bagi tenaga kependidikan di Universitas Negeri Yogyakarta. Penelitian ini adalah Evaluasi dengan model Discrepancy. Instrumen pengumpul data berupa angket yang ditujukan kepada tenaga kependidikan di UNY dengan skala Guttman. Validitas instrumen meliputi validitas logis dan validitas empiris yang dihitung dengan Pearson product moment. Reliabilitasnya dihitung dengan teknik Kuder Richardson (KR20). Teknik analisis data dengan menggunakan deskriptif dan persentase. Hasil penelitian menunjukkan bahwa: 1) payback period investasi dalam bentuk pendidikan bagi tenaga kependidikan yang melakukan peningkatan kualifikasi pendidikan tidak melebihi batas waktu yang ditentukan, sehingga invetasi dalam bentuk pendidikan efektif (feasible); 2) benefit/cost ratio investasi dalam pendidikan memberikan manfaat positif bagi tenaga kependidikan; 3) return on investment dalam perspektif pendidikan bagi tenaga kependidikan memiliki nilai positif sehingga investasi dapat dipertimbangkan; 4) net present value yang diperoleh bernilai positif sehingga investasi dalam perspektif pendidikan bagi tenaga kependidikan di Unviersitas Negeri Yogyakarta dapat dikatakan feasible.

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