scholarly journals JUSTIFICATION FOR CHOOSING THE DISCOUNT RATE IN INVESTMENT ANALYSIS

2021 ◽  
pp. 21-28
Author(s):  
Светлана Викторовна Кузина ◽  
Павел Константинович Кузин
Keyword(s):  
Discount Rate ◽  
Economic Efficiency ◽  
Methodological Approach ◽  
Investment Project ◽  
Cash Flows ◽  
Present Value ◽  
Investment Projects ◽  
The Future ◽  
Value Of Cash ◽  
Future Value

Статья посвящена вопросам выбора ставки дисконта для приведения будущей стоимости денежных потоков к настоящей стоимости с помощью коэффициента дисконтирования. Целью исследования является анализ и обоснование выбора численного значения ставки дисконта в зависимости от источников финансирования инвестиционного проекта. Авторами приведены практические рекомендации по выбору метода оценки экономической эффективности привлечения инвестиций как для экономически обособленного инвестиционного проекта, так и для инвестиционного проекта, интегрированного в действующее предприятие. Научная новизна полученных результатов заключается в разработке методического подхода к выбору численного значения ставки дисконта для приведения будущей стоимости денежных потоков к настоящей стоимости с помощью коэффициента дисконтирования и к выбору приоритетного метода оценки экономической эффективности для экономически обособленных и интегрированных в действующее предприятие инвестиционных проектов. The article is devoted to the issues of choosing the discount rate for bringing the future value of cash flows to the present value using the discount coefficient. The purpose of the study is to analyze and justify the choice of the numerical value of the discount rate depending on the sources of financing of the investment project. The authors provide practical recommendations on the choice of a method for assessing the economic efficiency of attracting investment both for an economically isolated investment project and for an investment project integrated into an operating enterprise. The scientific novelty of the obtained results consists in the development of a methodological approach to the choice of the numerical value of the discount rate for bringing the future value of cash flows to the present value using the discount coefficient and the choice of a priority method for assessing economic efficiency for both economically isolated and integrated investment projects in an operating enterprise.

scholarly journals Formation of the enterprise investment strategy

2021 ◽  
Vol 83 (2) ◽  
pp. 237-242
Author(s):  
Y. V. Pakhomova ◽  
N. N. Kudryavtseva ◽  
Y. N. Duvanova
Keyword(s):  
Life Cycle ◽  
Discount Rate ◽  
Methodological Approach ◽  
Investment Project ◽  
Electric Power Industry ◽  
Investment Strategy ◽  
Financial Risks ◽  
Systematic Analysis ◽  
Investment Projects ◽  
Modern Methods

Currently, modern methods used to evaluate the effectiveness of investment projects are most focused on quantitative assessment, do not take into account the peculiarities of project implementation at different stages, and also lack the ability to take into account investment risks in conditions of sectoral characteristics. Risks are associated with postponing the implementation of the investment project over time, so taking into account uncertainties should be an integral part of the assessment of the effectiveness of projects. When creating and implementing an investment project, it is necessary to take into account innovative, commercial, technical and technological, financial risks. Therefore, it is proposed to improve the methodology for assessing efficiency based on the risks taken into account in calculating the discount rate for each phase of the life cycle of the project. In the article, the authors substantiated the need to apply systematic analysis, modern methods, a methodological approach to assessing the effectiveness of investment projects in the electric power industry, taking into account the risks taken into account when calculating the discount rate for each phase of the life cycle of the project, which allows you to more accurately calculate the main indicators of the efficiency of the investment project. The main indicators of evaluation of investment projects efficiency and factors influencing decision-making on investment projects, such as inflation, discounting ratios of the corresponding investment sphere, are considered. Applied research, and even more so fundamental, requires significant investments, the return on which at the first stages of the development and implementation of investment projects is difficult to predict. The end result is also obviously not predictable, which makes investing one of the most risky areas of activity of modern companies.

Improving the financial investment system as an object of business economics

2020 ◽  
Vol 26 (3) ◽  
pp. 508-526
Author(s):  
O.T. Astanakulov ◽  
E.G. Sheina
Keyword(s):  
Deductive Reasoning ◽  
Methodological Approach ◽  
Investment Project ◽  
Assessment Method ◽  
Expert Assessment ◽  
Business Economics ◽  
Financial Investment ◽  
Economic Relations ◽  
Investment Projects ◽  
Investment Control

Subject. This article explores the economic relations of economic entities concerning effective investment activities, combining elements of investment control and assessment of related risk. Objectives. The article aims to analyze and logically substantiate the stages and types of investment activities of enterprises and investment projects in-progress, as well as define a methodological approach to assessing project risks. Methods. For the study, we used a structural and logical analysis, and deductive reasoning. The methodological base of the study is based on the principles of the theory of finance, investment and risk management. Results. The article defines stages of assessing the financial condition of enterprises and proposes a methodological approach to assessing certain risks of an investment project based on the risk ranking by degree of probability and significance of an event through applying the expert assessment method. The article also presents a practice-oriented risk map for investment projects and clarifies the concept of Investment Control. Conclusions. The results of the study can help address the significant for the Russian economy issue of stimulating and developing investment activities at enterprises, as well as implementing and evaluating the effectiveness of investment projects at the micro-and macro-levels of the country's economy.

The Valuation Relevance of Reversing Deferred Tax Liabilities

2004 ◽  
Vol 79 (2) ◽  
pp. 437-451 ◽  
Author(s):  
David A. Guenther ◽  
Richard C. Sansing
Keyword(s):  
Discount Rate ◽  
Firm Value ◽  
Market Value ◽  
Present Value ◽  
Depreciation Rate ◽  
The Future ◽  
Deferred Tax Liabilities ◽  
Deferred Tax ◽  
Tax Depreciation ◽  
Depreciation Methods

This paper compares two attributes of a deferred tax liability (DTL) that arise from differences in book and tax depreciation methods. The first attribute is the effect of the DTL on the market value of the firm. The second is the length of time between when the asset is placed into service and when the DTL associated with that asset begins to reverse. The paper shows that a decrease in the time it takes for the DTL to begin to reverse is neither necessary nor sufficient for the value of the DTL to increase. It also shows that the value of the DTL is not equal to the present value of the future deferred tax expense. The effect of one dollar of DTL on firm value depends only on the tax depreciation rate and the discount rate.

Capital Budgeting and business cycles

2021 ◽  
pp. 315-335
Author(s):  
Edward W. Fuller
Keyword(s):  
Interest Rate ◽  
Demand Curve ◽  
Supply And Demand ◽  
Investment Project ◽  
The Other ◽  
Investment Projects ◽  
Scarce Resources ◽  
Other Hand ◽  
The Future ◽  
The Interest Rate

Every investment project is aimed at achieving some future goal. This goal can only be attained by employing scarce resources, like time. Every investment project entails foregoing other investment projects. It is impossible to undertake all investment projects simultaneously because resources are scarce. This means each investment project is subject to cost. The investment project may be unsuccessful in achieving the future goal and the entrepreneur may suffer a loss. On the other hand, investment projects are only undertaken because they are perceived as more valuable than their costs. Every investment project undertaken implies the possibility of earning a profit. Investment projects take time. An investment project can be represented by a time line. Time A represents the beginning of the production process. Time B is the end of the production pro-cess. Line AB is called the period of production. Present goods are scarce resources that can be consumed im-mediately. On the other hand, future goods cannot be consumed immediately. Future goods are only expected to be consumer goods at some point in the future. An investment project entails making an investment at time A and receiving a present good at time B. All else equal, present goods are more valuable than future goods.1 Any good at time A is more valuable than the same good at time B. This is called time preference. Money is the present good par excellence. Therefore, future goods can be called future cash flows. All else equal, present money is more valuable than future money. This is called the time value of money. The interest rate is the price of present goods in terms of future goods. The interest rate is the price which equates the amount of present goods provided by savers with the amount of present goods demanded by investors. Like all prices, the interest rate is determined by supply and demand. Savers are suppliers of present goods. The supply curve (S) is the quantity of present goods supplied at each interest rate. Factor owners (investors) are the demanders, or buyers, of present goods. The demand curve (D) is the quantity of present goods demanded at each interest rate. The intersection of the supply and demand curve determines the interest rate. The interest rate is determined by the supply and demand for present goods:2

scholarly journals Economic-Mathematical Model for Assessing the Sensitivity of International Innovation and Investment Projects

2019 ◽  
Vol 8 (12) ◽  
pp. 140-145
Keyword(s):  
Mathematical Model ◽  
International Business ◽  
Economic Efficiency ◽  
Net Present Value ◽  
Present Value ◽  
Investment Activity ◽  
Investment Projects ◽  
Internal Parameters ◽  
Proposed Model ◽  
Sensitivity Indicator

International innovation and investment activity occupy a special place in the system of modern international business. The authors propose an economic and mathematical model for assessing the sensitivity of international innovation and investment projects by the criterion of net present value. It is advised to use the obtained sensitivity indicator as an additional one in assessing the economic efficiency of international innovation and investment projects of an enterprise. The proposed model makes it possible to determine the effect of several internal parameters simultaneously on the net present value of the project.

scholarly journals DETERMINATION OF OPTIMAL FUNDING SOURCES FROM A SET OF ALTERNATIVES

2021 ◽  
pp. 55-63
Author(s):  
N. Koshevsky
Keyword(s):  
Capital Structure ◽  
Economic Efficiency ◽  
Investment Project ◽  
Point Of View ◽  
Practical Case ◽  
Baseline Scenario ◽  
Investment Projects ◽  
Funding Sources ◽  
Return On Capital ◽  
The Impact

The introduction provides a brief review of the literature on methods for assessing the effectiveness of investment projects, based on which the choice of optimal sources of financing is made. In the main part of the work, various scenarios for the implementation of an investment project are disclosed: sources of financing that are alternative to the baseline scenario are attracted. In the final part of the work, the considered scenarios are assessed and conclusions are drawn.For each enterprise, improving the financial and economic efficiency of its activities is one of the priority tasks. These tasks include the need to increase the return on capital, the choice of funding sources that have a positive effect on economic efficiency. This paper examines the ways of choosing the optimal, from the point of view of the impact on economic efficiency, instruments for financing an investment project. A practical case of project financing with an assessment of the effectiveness of the implementation of an investment project is considered. To analyze the alternatives, a financial business model was developed, which allows you to quickly make changes, update performance indicators and make decisions about the required capital structure. It is concluded that the optimal capital structure with the highest NPV indicator and that when assessing the efficiency parameters, it is necessary to make an adjustment for the possible presence in the company's capital structure of funding sources that distort the comparability of the project in relation to projects without such sources (for example, budget grants).

scholarly journals Investment efficiency of business in Ukraine: realities and assessment methodology

2021 ◽  
Vol 2 (47) ◽  
pp. 48-63
Author(s):  
L.V. Sorokina ◽  
A.F. Hoiko
Keyword(s):  
Economic Efficiency ◽  
Capital Investment ◽  
Construction Projects ◽  
Methodological Approach ◽  
International Investment ◽  
Investment Efficiency ◽  
Investment Climate ◽  
Investment Projects ◽  
Methodical Approach ◽  
National Investment

 The article systematized factors of investment attractiveness and investment climate in Ukraine. The expediency of supplementinganexistinglist of components of investment climate is substantiated by two additional factors. Themechanismo factionoftheproposedfactorsthatreflectthenegative effectin the developmen to freformsand innovations, aswellas the economic efficiency of construction projects on the financial result, expected from investigations, isrevealed. The trends in the developmen to finvestment activityinUkrainein 2015 - 2020, the existence of reserves for increasing the economic efficiency of investments and the need for their calculation witht hehelpof a special methodological approac hare analyzed. The methodical approach to the evaluation of investment efficiency of constructionis developed, which is based on the magnitude of the multiplier of capital investment in construction inthelong-termperiodandrefinedtheboundariesoftheretrospectivehorizon, which are necessary to determine such a multiplier. The rapid importance of aninvestment multiplier of construction isestablis hedand a methodological approach to qualitative interpretation of this indicator issubstantiated. The basis of a methodological approach is the results of a cluster analysis of aninvestment multiplier in the contex to fvarioustypesofconstructionandregions, the methodof K-medium, aswellaspostulatesofthetheoryoffuzzysets. Within the framework of the developed methodological approach, the "investment attractiveness of construction" characteristicsis presentedin the form of a fuzz yterm-shear, which combines three terms: "Lowefficiency", "averageefficiency", "highlevelofefficiency". Inaccordance with descriptiv estatistics of thereceived clusters, the parameters and type of functions of affiliation, the boundaries of clusters that directly affecttheuse of correctivea mendments to the value of the economic effectof capitalinvestment to the level of the contractor-executor of construction work are substantiated. The sizeofther is kfactorisestablishedtakingintoaccountthetypeofconstructionandmedium-layervalues ​​ofmultipliersofcapitalinvestmentinconstruction. Theuse of the proposed Metdic approach to the analysis of investment efficiency inconstruction makesitpossible to increase the accuracy of calculations on th epre-investmentst age of construction, aswellastoimprovemonitoring of capital investment development, carried out in the process of implementing national investment programs and international investment projects.

The Weitzman Argument

2012 ◽  
Author(s):  
Christian Gollier
Keyword(s):  
Discount Rate ◽  
Opportunity Cost ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Cash Flows ◽  
Simple Rule ◽  
Rate Of Return ◽  
Net Benefit ◽  
Investment Projects ◽  
Net Benefits

This chapter examines a model in which the exogeneous rate of return of capital is constant but random. Safe investment projects must be evaluated and implemented before this uncertainty can be fully revealed, i.e., before knowing the opportunity cost of capital. A simple rule of thumb in this context would be to compute the net present value (NPV) for each possible discount rate, and to implement the project if the expected NPV is positive. If the evaluator uses this approach, this is as if one would discount cash flows at a rate that is decreasing with maturity. This approach is implicitly based on the assumptions that the stakeholders are risk-neutral and transfer the net benefits of the project to an increase in immediate consumption. Opposite results prevail if one assumes that the net benefit is consumed at the maturity of the project.

Evaluating Foreign Direct Investment Projects

2018 ◽  
pp. 193-239
Keyword(s):  
Foreign Direct Investment ◽  
Host Country ◽  
Direct Investment ◽  
Home Country ◽  
Investment Project ◽  
Cash Flows ◽  
Parent Company ◽  
Investment Projects ◽  
Country Level ◽  
At Home

As explained in the foregoing chapter, once the relevant cash outflows and inflows associated with a foreign direct investment project are estimated so as to calculate the net cash flows, the desirability of the investment project should then be determined in terms of its economic profitability. Therefore, in this chapter the methods widely used in evaluating investment projects are discussed and their advantages as well as shortcomings are highlighted. Later in the chapter, evaluating foreign direct investment projects from the viewpoint of the parent company is elaborated in terms of profit and/or income transferred to the home country. The same investment evaluation techniques were applied to the net cash flows transferred to the home country of the parent company. The possible income and/or dividends to be remitted to the home country of a parent company are identified and discussed so as to reflect the viewpoints of investing parent companies when planning foreign direct investments. This two-level evaluation approach is generally followed in practice to make sure that direct investments are profitable at both host and home country levels, since an investment project that is not profitable at host country level would not be profitable at home country level either or a project that is profitable at host country level may not be profitable at home country level.

Increasing the Efficiency of Industrial Enterprise Investment Projects through Cash Flow Management

2017 ◽  
Vol 2017 (2) ◽  
pp. 90-106
Author(s):  
Denis Shageev
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Cash Flows ◽  
Negative Influence ◽  
Positive Influence ◽  
Effective Management ◽  
Method Of Calculation ◽  
Investment Projects ◽  
Cash Flow Management ◽  
Actual Size

Objective and subjective factors of influence on the nominal and actual size of a cash flow of the project in the form of the scheme are opened. The analysis of method of calculation of a discount rate and award for risk is made. On analysis results, in article it was offered to exclude an indicator of an award for risk from a formula of calculation of a discount rate and to research it separately as the certain managed size influencing the nominal, but not actual size of cash flows of the project. It gave the chance to technically reduce value of a discount rate and by that to increase the NPV real value of the project. Designations of negative and positive factors project risks are entered. Availability and an opportunity positive influence of factors risks on the project is proved. The formulas of calculation of the modified cash flow, effect and effective management of cash flows of the project differing on structure, content and entering of the additional positive amendment on risk are offered. It will give the chance to reduce or eliminate negative influence of objective and subjective factors risks, and in certain cases and in addition to raise project NPV. For assessment of levels of effective management of cash flows the verbal scale is offered.

Sign in / Sign up

Export Citation Format

Share Document