Fair value, equity cash flow and project finance valuation: ambiguities and a solution

2017 ◽  
Vol 43 (8) ◽  
pp. 914-927 ◽  
Author(s):  
Krzysztof Jackowicz ◽  
Paweł Mielcarz ◽  
Paweł Wnuczak
Keyword(s):  
Cash Flow ◽  
Design Methodology ◽  
Fair Value ◽  
Project Finance ◽  
Content Type ◽  
Correct Method ◽  
Proposed Model ◽  
Debt Covenant ◽  
Increasing Function ◽  
Specific Timing

Purpose The literature on project finance appraisal contains several ambiguities mainly concerning the correct method of equity cash flow (ECF) determination. This vagueness can lead to serious misevaluation of these projects. The purpose of this paper is to present and justify a correct method of ECF determination for project finance evaluation. Design/methodology/approach Based on the analysis of the specificity of project finance ventures and the study of existing literature, the authors propose a coherent model of ECF estimation that avoids misevaluating project finance ventures. Findings This paper demonstrates that the potential dividends methodology of ECF estimation, used commonly in the corporate finance world, leads to the erroneous valuation of project finance investments. Moreover, simulations demonstrate that the scale of this misevaluation is an increasing function of the debt covenant duration, the required rate of return, and the investment outlay dispersion over time. The proposed model of proper project finance valuation, despite inconsistency with assumptions of the fair value concept, is best suited for project finance venture appraisal, taking into consideration the inherently specific timing of the ECF. Originality/value This paper rectifies, clarifies, and extends the range of existing solutions for the project finance valuation and the application of the concepts of actual dividends and potential dividends in different valuation contexts. Furthermore, it proposes a simple and coherent method to value project finance ventures. Additionally, it offers evidence of the scale of NPV misevaluation in project finance, which occurs when the potential dividends approach is utilized.

A method to evaluate credit risk for banks under PPP project finance

2019 ◽  
Vol 27 (2) ◽  
pp. 483-501 ◽  
Author(s):  
Xiuqin Wang ◽  
Lanmin Shi ◽  
Bing Wang ◽  
Mengying Kan
Keyword(s):  
Credit Risk ◽  
Cash Flow ◽  
Design Methodology ◽  
Interval Estimation ◽  
Risk Preference ◽  
Project Finance ◽  
Content Type ◽  
Potential Loss ◽  
Loss Range ◽  
Evaluating Method

Purpose The purpose of this paper is to provide a method that can better evaluate the credit risk (CR) under PPP project finance. Design/methodology/approach The principle to evaluate the CR of PPP projects is to calculate three critical indicators: the default probability (DP), the recovery rate (RR) and the exposure at default (EAD). The RR is determined by qualitative analysis according to Standard & Poor’s Recovery Scale, and the EAD is estimated by NPV analysis. The estimation of the DP is the focus of CR assessment because the future cash flow is not certain, and there are no trading records and market data that can be used to evaluate the credit condition of PPP projects before financial close. The modified CreditMetrics model and Monte Carlo simulation are applied to evaluate the DP, and the application is illustrated by a PPP project finance case. Findings First, the proposed method can evaluate the influence of the project’s cash flow uncertainty on the potential loss of the bank. Second, instead of outputting a certain default loss value, the method can derive an interval of the potential loss for the bank. Third, the method can effectively analyze how different repayment schedules and risk preference of banks influence the evaluating result. Originality/value The proposed method offers an approach for the bank to value the CR under PPP project finance. The method took into consideration of the uncertainty and other characteristics of PPP project finance, adopted and improved the CreditMetrics model, and provided a possible loss range under different project cash flow volatilities through interval estimation under certain confident level. In addition, the bank’s risk preference is considered in the CR evaluating method proposed in this study where the bank’s risk preference is first investigated in the CR evaluating process of PPP project finance.

Investigating the effects of operators on warranty cost under sales delay conditions

2018 ◽  
Vol 24 (2) ◽  
pp. 244-259
Author(s):  
Sepideh Eskandari Dorabati ◽  
Ali Zeinal Hamadani ◽  
Hamed Fazlollahtabar
Keyword(s):  
Data Analysis ◽  
Design Methodology ◽  
Claims Data ◽  
Time Interval ◽  
Content Type ◽  
Proposed Model ◽  
Warranty Cost ◽  
Warranty Costs ◽  
Warranty Claims ◽  
Claims Data Analysis

Purpose Due to the fact that the non-standard products, being used by customers, may cause failures in products with sales delays, which naturally affect the warranty policy. Thus, it seems to be necessary to study these two concepts simultaneously. The paper aims to discuss these issues. Design/methodology/approach In this paper, a model is developed for estimating the expected warranty costs under sales delay conditions when two operator costs (failing but not reported and non-failing but reported) are included. Findings The proposed model is validated using a numerical example for a two types of intermittent and fatal failures occur under a non-renewing warranty policy. Originality/value Sales delay is the time interval between the date of production and the date of sale. Most reported literature on warranty claims data analysis related to sales delay have mainly focussed on estimating the probability distribution of the sales delay.

Proposing micro-macro HRM strategies to overcome challenges of workforce diversity and deviance in ASEAN

2018 ◽  
Vol 37 (1) ◽  
pp. 6-26 ◽  
Author(s):  
Pooja Malik ◽  
Usha Lenka ◽  
Debashish Kumar Sahoo
Keyword(s):  
Systematic Review ◽  
Conceptual Framework ◽  
Design Methodology ◽  
Southeast Asian ◽  
Workplace Deviance ◽  
Workforce Diversity ◽  
Review Of Literature ◽  
Content Type ◽  
Proposed Model ◽  
Key Word

Purpose The purpose of this paper is to propose a conceptual framework associating globalization, workforce diversity, and deviance and suggest micro-macro HRM strategies to overcome challenges associated with the workforce diversity and workplace deviance. Design/methodology/approach A systematic review of literature of past 25 years was carried out with the key word “globalization, workforce diversity, and deviance” from several electronic databases. Findings Findings propose micro-macro HRM strategies to be adopted by HR practitioners in Association of Southeast Asian Nations (ASEAN) organizations to manage workforce diversity and deviance in the age of globalization. Research limitations/implications The challenges due to workforce diversity may get worse because ASEAN is more incongruent in terms of phases of economic, social, cultural, and political advancement. Therefore, proposed model can be tested and compared in different ASEAN organizations. Originality/value There is a dearth of literature associating globalization, workforce diversity, and deviance. This paper bridges this gap by proposing a conceptual framework in the ASEAN context and suggests micro-macro HRM strategies to be adopted by HRM practitioners to overcome associated challenges with workforce diversity and deviance.

How do firms manage their interest rate exposure?

2019 ◽  
Vol 20 (5) ◽  
pp. 501-519 ◽  
Author(s):  
Andreas Hecht
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Cash Flow ◽  
Fair Value ◽  
Separate Analysis ◽  
Content Type ◽  
Financial Firms ◽  
Exposure Data ◽  
Before And After ◽  
Data Granularity

Purpose This paper aims to identify how non-financial firms manage their interest rate (IR) exposure. IR risk is complex, as it comprises the unequal cash flow and fair value risk. The paper is able to separate both risk types and investigate empirically how the exposure is composed and managed, and whether firms increase or decrease their exposure with derivative transactions. Design/methodology/approach The paper examines an unexplored regulatory environment that contains publicly reported IR exposure data on the firms’ exposures before and after hedging. The data were complemented by indicative interviews with four treasury executives of major German corporations, including two DAX-30 firms, to include professional opinions to validate the results. Findings The paper provides new empirical insights about how non-financial firms manage their interest rate exposure. It suggests that firms use hedging instruments to swap from fixed- to floating-rate positions predominantly in the short-to medium-term, and that 63 [37] per cent of IR firm exposure are managed using risk-decreasing [risk-increasing/-constant] strategies. Practical implications Interviewed treasury executives suggest that the advanced disclosures benefit various stakeholders, ranging from financial analysts and shareholders to potential investors through more meaningful analyses on firms’ risk management activities. Further, the treasury executives indicate that the new data granularity would enable firms to carry out unprecedented competitive analyses and thereby benchmark and improve their own risk management. Originality/value The paper is the first empirical study to analyze the interest rate activities of non-financial firms based on actually reported exposure data before and after hedging, rather than using proxy variables. In addition, the new data granularity enables a separate analysis of the cash flow and fair value risk to focus on the non-financial firms’ requirements.

Fair value accounting, earnings management, and the case of bargain purchase gain

2019 ◽  
Vol 28 (2) ◽  
pp. 229-253
Author(s):  
Steven Lilien ◽  
Bharat Sarath ◽  
Yan Yan
Keyword(s):  
Design Methodology ◽  
Fair Value ◽  
Control Group ◽  
Fair Value Accounting ◽  
Market Returns ◽  
Accounting Earnings ◽  
Content Type ◽  
Level 3 ◽  
Accounting Earnings Management

Purpose The purpose of this paper is to investigate the association between bargain purchase gains (BPGs) booked by the acquirer and smoothing of acquirers’ earning performance across time. Design/methodology/approach The authors use a sample of 122 bargain purchase acquisitions in non-financial industries from 2009 to 2012 and a pair-match control group of 122 goodwill acquisitions. Findings The authors find that BPGs, and in particular, the Level-3 fair value estimates of intangible assets acquired, have consistently been used to smooth earnings but that such smoothing activities are not associated with long-term market returns. Originality/value This study is the first one to investigate bargain purchase acquisitions in a broad range of non-financial industries and suggests that managers are using the valuation of intangibles to avoid unfavorable earnings even though these valuations are not credible to investors.

An areal openness model (AOM) for quantifying the “openness” of floor plans

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zoraya Roldán Rockow ◽  
Brandon E. Ross
Keyword(s):  
Real World ◽  
Design Methodology ◽  
Floor Plan ◽  
Existing Buildings ◽  
Content Type ◽  
Alternative Plan ◽  
Proposed Model ◽  
Reasonable Approach ◽  
Floor Plans

PurposeThis paper aims to describe and demonstrate a quantitative areal openness model (AOM) for measuring the openness of floor plans. Creation of the model was motivated by the widely reported but rarely quantified link between openness and adaptability.Design/methodology/approachThe model calculates values for three indicators: openness score (OS), weighted OS (WOS) and openness potential (OP). OS measures the absence of obstructions (walls, chases, columns) that separate areas in a floor plan. WOS measures the number of obstructions while also accounting for the difficulty of removing them. OP measures the potential of a floor plan to become more open. Indicators were calculated for three demolished case study buildings and for three adapted buildings. The case study buildings were selected because openness – or lack thereof – contributed to the owners' decisions to demolish or adapt.FindingsOpenness indicators were consistent with the real-world outcomes (adaptation or demolition) of the case study buildings. This encouraging result suggests that the proposed model is a reasonable approach for comparing the openness of floor plans and evaluating them for possible adaptation or demolition.Originality/valueThe AOM is presented as a tool for facility managers to evaluate inventories of existing buildings, designers to compare alternative plan layouts and researchers to measure openness of case studies. It is intended to be sufficiently complex as to produce meaningful results, relatively simple to apply and readily modifiable to suit different situations. The model is the first to calculate floor plan openness within the context of adaptability.

A numerical method for solving the physics-based model of IGBT with all free-carrier injection conditions in the base region

2017 ◽  
Vol 36 (6) ◽  
pp. 1653-1662 ◽  
Author(s):  
Jiajia Chen ◽  
Yuhan Ma ◽  
Shiyou Yang
Keyword(s):  
Mathematical Model ◽  
Numerical Model ◽  
Design Methodology ◽  
Free Carrier ◽  
Carrier Injection ◽  
Base Region ◽  
Content Type ◽  
Insulated Gate Bipolar Transistor ◽  
Proposed Model ◽  
Solution Methodology

Purpose The purpose of this paper is to provide an accurate model and method to simulate the transient performances of an insulated gate bipolar transistor (IGBT) in an arbitrary free-carrier injection condition. Design/methodology/approach A numerical model and method for solving the physics-based model, an ambipolar diffusion equation-based model, of an IGBT is proposed. Findings The results of the proposed model are very close to the tested ones. Originality/value A mathematical model for an IGBT considering all free-carrier injection conditions is introduced, and a numerical solution methodology is proposed.

How to measure knowledge management: dimensions and model

VINE ◽  
2015 ◽  
Vol 45 (1) ◽  
pp. 107-125 ◽  
Author(s):  
Mariano García-Fernández
Keyword(s):  
Knowledge Management ◽  
Literature Review ◽  
Design Methodology ◽  
Present Model ◽  
Content Type ◽  
Proposed Model ◽  
The Creation ◽  
And Storage ◽  
Practical Implications

Purpose – The aims of this paper are: to identify the dimensions of knowledge management (KM), and to propose a model for KM that will be useful for future researchers in carrying out KM measurement. Design/methodology/approach – The paper is based on a literature review of theoretical and empirical contributions to KM. Findings – The results obtained show that the creation, transfer and storage, and implementation and use are dimensions of the concept of KM. On the basis of these dimensions, this study proposes a model integrating these dimensions and operationalizes it using selected items, so that future researchers may carry out measurements using the proposed model. Practical implications – The study implies that companies and researchers use a smaller time in theoretical checks and can devote to measurements which develop improvements. Originality/value – The present model differs from other, previous models in that it integrates various approaches to the study of KM.

scholarly journals The unit train make-up scheme for loaded direction in the heavy haul railway

2019 ◽  
Vol 1 (1) ◽  
pp. 30-44 ◽  
Author(s):  
Yuqiang Wang ◽  
Yuguang Wei ◽  
Hua Shi ◽  
Xinyu Liu ◽  
Liyuan Feng ◽  
...  
Keyword(s):  
Integer Programming ◽  
Design Methodology ◽  
Arrival Time ◽  
Programming Model ◽  
Nonlinear Integer Programming ◽  
Content Type ◽  
Proposed Model ◽  
Heavy Haul ◽  
Heavy Haul Railway

Purpose The purpose of this paper is to study the unit train make-up scheme for loaded direction in the heavy haul railway. Design/methodology/approach A 0-1 nonlinear integer programming model with the aim of minimizing the idling period between actual train arrival time and expected train arrival time for all loaded unit trains are proposed. Findings The proposed model is applied into a case study based on Daqin heavy haul railway. Results show that the proposed model can offer operators an optimal unit train make-up scheme for loaded direction in heavy haul railway. Originality/value The proposed model can offer operators an optimal unit train make-up scheme for loaded direction in heavy haul railway.

Overall multiobjective optimization of construction projects scheduling using particle swarm

2016 ◽  
Vol 23 (3) ◽  
pp. 265-282 ◽  
Author(s):  
Emad Elbeltagi ◽  
Mohammed Ammar ◽  
Haytham Sanad ◽  
Moustafa Kassab
Keyword(s):  
Cash Flow ◽  
Construction Projects ◽  
Real Life ◽  
Particle Swarm ◽  
Project Managers ◽  
Time Cost ◽  
Swarm Optimization ◽  
Content Type ◽  
Proposed Model ◽  
Optimized Schedule

Purpose – Developing an optimized project schedule that considers all decision criteria represents a challenge for project managers. The purpose of this paper is to provide a multi-objectives overall optimization model for project scheduling considering time, cost, resources, and cash flow. This development aims to overcome the limitations of optimizing each objective at once resulting of non-overall optimized schedule. Design/methodology/approach – In this paper, a multi-objectives overall optimization model for project scheduling is developed using particle swarm optimization with a new evolutionary strategy based on the compromise solution of the Pareto-front. This model optimizes the most important decisions that affect a given project including: time, cost, resources, and cash flow. The study assumes each activity has different execution methods accompanied by different time, cost, cost distribution pattern, and multiple resource utilization schemes. Findings – Applying the developed model to schedule a real-life case study project proves that the proposed model is valid in modeling real-life construction projects and gives important results for schedulers and project managers. The proposed model is expected to help construction managers and decision makers in successfully completing the project on time and reduced budget by utilizing the available information and resources. Originality/value – The paper presented a novel model that has four main characteristics: it produces an optimized schedule considering time, cost, resources, and cash flow simultaneously; it incorporates a powerful particle swarm optimization technique to search for the optimum schedule; it applies multi-objectives optimization rather than single-objective and it uses a unique Pareto-compromise solution to drive the fitness calculations of the evolutionary process.

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