scholarly journals Certainty equivalent coefficients and capital budgeting: A caveat

1993 ◽  
Vol 24 (4) ◽  
pp. 130-133
Author(s):  
S. Paulo
Keyword(s):  
Cash Flow ◽  
Net Present Value ◽  
Flow Analysis ◽  
Capital Budgeting ◽  
Technical Note ◽  
Certainty Equivalent ◽  
Present Value ◽  
Discounted Cash Flow ◽  
Important Principle ◽  
The Cost

The purpose of this technical note is to draw attention to the problems which are inherent in the use of certainty equivalent coefficients as an approach to incorporating risk into capital budgeting. More specifically, the certainty equivalent coefficient net present value criterion violates an important principle of cash flow determination for discounted cash flow analysis. Further, this approach precludes the use of net present value profiles which are pivotal when evaluating conflicts among mutually exclusive projects. In addition, use of certainty coefficient equivalents amounts to an acknowledgement that the concept, function and use of the cost of capital is improperly understood.

scholarly journals Specialized Discounted Cash Flow Analysis Formulas for Valuation of Benefits and Costs of Urban Trees and Forests

2011 ◽  
Vol 37 (5) ◽  
pp. 200-206
Author(s):  
Kristin Peterson ◽  
Thomas Straka
Keyword(s):  
Cash Flow ◽  
Net Present Value ◽  
Flow Analysis ◽  
Urban Forestry ◽  
Urban Trees ◽  
Present Value ◽  
Discounted Cash Flow ◽  
Appraisal Method ◽  
Individual Trees ◽  
Benefits And Costs

Urban trees and forests have distinct benefits and costs that can be evaluated financially. While there are appraisal methods commonly used to value individual trees and urban forests, one method that is difficult to use in practice is a discounted cash flow (DCF) analysis. This is the appraisal method that best accounts for the time value of money and allows for a temporal comparison of benefits and costs. Current timber appraisal methods are discussed for urban situations and DCF analysis is presented as a viable supplemental appraisal method for valuation of the urban trees. Simple models are presented that allow for the solution of DCF-type urban forestry valuations using conventional software valuation packages. Examples are provided of typical urban tree benefit and cost scenarios, with DCF calculations of present value (PV) and net present value using the specialized DCF formulas.

scholarly journals The Economic Evaluation Of The Production Of Oil–Palm–Shell–Based Phenol

2012 ◽  
Author(s):  
Chuan Chin Wong ◽  
Farid Nasir Ani
Keyword(s):  
Cash Flow ◽  
Oil Palm ◽  
Net Present Value ◽  
Phenol Formaldehyde ◽  
Present Value ◽  
Discounted Cash Flow ◽  
Operating Life ◽  
Palm Shell ◽  
Oil Palm Shell ◽  
The Cost

Kajian lepas yang telah dijalankan untuk mengekstrak fenol daripada tempurung kelapa sawit menunjukkan ekstrak itu mengandungi 80.1% ketulenan dan dibuktikan dapat menggantikan fenol–petroleum untuk menghasilkan resin fenol–formaldehyde. Memandangkan harga fenol adalah lebih kurang RM 3600/ton, maka pengiraan dibuat untuk menentukan harga fenol–tempurung–kelapa–sawit. Tiga jenis kilang yang berbeza akan dikaji, iaitu 1000 ton/tahun, 10 000 ton/tahun, and 100 000 ton/tahun. Semua pengiraan dijalankan dengan menggunakan penyelaku DESIGN II. Daripada analisis ekonomi, kos bagi ketiga–tiga kilang ialah masing–masing RM 1084, RM 1008, dan RM 972 setiap ton. Untung bersih selepas cukai ialah masing–masing RM 361,530, RM 4,140,764 dan RM 43,943,092 setiap tahun. Kilang itu memerlukan 3 tahun untuk memulakannya dan boleh beroperasi selama 17 tahun dengan penyusutan 10% setahun. Tempoh bayar balik ialah 10.0, 8.4, dan 7.8 tahun termasuk 3 tahun pertama. Peratus bayar balik selepas cukai ialah masing–masing 71%, 169%, dan 426%. Kata kunci: Fenol, tempurung kelapa sawit, fenol–tempurung–kelapa–sawit, fenol–petroleum Previous work done in the extraction of phenol from oil palm shells showed that it contained up to 80.1% purity of phenolic compounds. The oil–palm–shell–based phenol is applicable to replace petroleum–based phenol in preparation of phenol formaldehyde wood adhesives. Since the average price of petroleum–based phenol is around RM 3600/ton, this work was done to estimate the cost of oil–palm–shell–based phenol. In this present research, three oil–palm–shell–based phenol manufacturing plants were investigated. Their manufacturing capacities are 1000 ton/year, 10 000 ton/year, and 100 000 ton/year. All the designs are based on the results from simulator DESIGN II. From the economic analysis, the cost of the oil–palm–shell–based phenol is RM 1084, RM 1008, and RM 972 per ton respectively. It shows that the cost of the oil–palm–shell–based phenol is reduced when the productivity is high. The net profit after taxes for these plants is RM 361,530, RM 4,140,764 and RM 43,943,092 per year respectively. The plants require 3 years for starting–up and their operating life is 17 years with a depreciation of 10% per year. For undiscounted cash flow, the pay back period is 10.0, 8.4, and 7.8 years respectively including the first 3 years. For different discount rates, values of net present value and discounted break–even point vary. The discounted cash flow rate of return is 14.0%, 20.0%, and 25.0% respectively in these plants with related net present value becomes zero. The after tax rate return obtained are 71%, 169%, and 426% respectively. Key words: Phenol, oil palm shells, oil–palm–shell–based phenol, petroleum–based pheno

TINJAUAN STUDI KELAYAKAN USAHA BADAN USAHA MILIK DESA (NAGARI) KAMANG HILIA SEJAHTERA KENAGARIAN KAMANG HILIA, KECAMATAN KAMANG MAGEK, KABUPATEN AGAM, PROVINSI SUMATERA BARAT

2018 ◽  
Vol 3 (2) ◽  
pp. 160
Author(s):  
Halkadri Fitra ◽  
Salma Taqwa ◽  
Charoline Cheisviyanny ◽  
Abel Tasman ◽  
Nurzi Sebrina
Keyword(s):  
Cash Flow ◽  
Net Present Value ◽  
Average Rate ◽  
Flow Analysis ◽  
Payback Period ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Internal Rate

Penelitian ini bertujuan untuk melihat kelayakan aspek keuangan usaha grosir sembako Badan Usaha Milik Desa (Nagari) Kamang Hilia Sejahtera di Kenagarian Kamang Hilia Kecamatan Kamang Magek Kabupaten Agam Provinsi Sumatera Barat yang dilakukan pada tahun 2018. Penelitian bersifat deskriptif kuantitatif dengan menggunakan metode cash flow analysis, payback period, net present value, profitability index, internal rate of return, dan average rate of return. Hasil penelitian menunjukkan bahwa nilai net cash flow Badan Usaha Milik Desa (Nagari) Kamang Hilia Sejahtera adalah positif yaitu Rp.21.774.000, nilai payback period adalah 1,15 tahun, nilai net present value positif sebesar Rp.10.680.034,47, nilai profitability index adalah positif 1,37, sedangkan nilai internal rate of return adalah 46,7% dan nilai average rate of return adalah 57,23%. Berdasarkan standar penilaian maka semua metode yang digunakan memberikan kesimpulan bahwa usaha grosir sembako milik Badan Usaha Milik Desa (Nagari) Kamang Hilia Sejahtera dalam kategori layak untuk dilaksanakan.

AN HISTORICAL PERSPECTIVE OF NET PRESENT VALUE AND EQUIVALENT ANNUAL COST

1982 ◽  
Vol 9 (1) ◽  
pp. 103-110 ◽  
Author(s):  
Thomas W. Jones ◽  
David Smith
Keyword(s):  
Cash Flow ◽  
Annual Cost ◽  
Historical Development ◽  
Historical Perspective ◽  
Net Present Value ◽  
Present Value ◽  
Discounted Cash Flow

Net present value and equivalent annual cost are two discounted cash flow criteria for comparing investment proposals. Why have accountants taken to net present value? Why do engineers readily use equivalent annual cost? This paper investigates the historical development of these principles to provide an explanation of why this is so.

scholarly journals Reinvestment Bias When Analyzing Mutually Exclusive Assets

2011 ◽  
Vol 2 (3) ◽  
pp. 71
Author(s):  
Robert J. Sweeney
Keyword(s):  
Net Present Value ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Internal Rate ◽  
Current Period ◽  
The Cost ◽  
Flows Over Time

Capital budgeting decisions generally involve the commitment of resources in the current period to secure positive cash flows over time that generate a rate of return in excess of the cost of the funds invested. The most common techniques used to perform this analysis are the Net Present Value (NPV) and the Internal Rate of Return (IRR).Conceptually, these two techniques are substitutable; i.e. the resulting decision from a NPV analysis is identical to the decision from an IRR analysis. In practice, however, the NPV and the IRR can, on occasion, produce conflicting decisions. Specifically, when analyzing mutually exclusive assets the Net Present Value can support one asset while the Internal Rate of Return supports the other. The purpose of this paper is twofold; first, to highlight structural deficiencies in the conventional application of the NPV and the IRR, and second, to demonstrate a procedure to correct for these structural errors.

scholarly journals Improving Financial Performance Using Capital Budgeting Method Towards Cleaner Eyewear Product: A Case Study of Nasho

2020 ◽  
Vol 5 (6) ◽  
pp. 128-135
Author(s):  
Mia Juliani ◽  
Raden Aswin Rahadi
Keyword(s):  
Financial Performance ◽  
Cash Flow ◽  
Net Present Value ◽  
Secondary Data ◽  
Capital Budgeting ◽  
Primary Data ◽  
Financial History ◽  
History Of ◽  
The Cost

The purpose of this study was to know the factor that can be improved in the financial performance of Nasho. Nasho is a brand that focuses on offering products for eyeglass and helmet application that can be water, dew and dust repellent by utilizing the application of nanotechnology in the scope market of Bandung. However, to adapt the technology for Nasho is currently hampered by the limited capital to develop the technology itself. The company needs to manage the capital and minimize the cost to optimize the finance. The company needs to control the cost and expenses to avoid the high number of costs and expenses in terms of the development business stage. The research will use a qualitative approach by conducting interviews to Mr. Reza optics that will cooperate with Nasho to sell the product and use secondary data information from literature review, journal, books and primary data from financial history of Nasho and survey from the consumer of Nasho namely College student, Medical staff and Motorcycle riders and the components that are relevant to the conceptual framework. Survey used to get the consumer product and buying tendency information from Nasho’s consumer to validate the assumption of brand, price and buying intencity. Interview was conducted to get the suitable number of sales that are being used for cash flow forecasting scenario. The findings of this research is Nasho had low financial performance in the first two years of the business. After the evaluation, this can be improved by making a financial planning mix for short term and long term using the capital budgeting method in the form of three optimal scenarios of cash flow, Net Present Value (NPV), IRR and payback period that can be used as an optimal plan to run this business for the next five years.

OPTIMASI STRIPPING RATIO DENGAN METODE DISCOUNTED CASH FLOW PADA PROJECT PLTU MULUT TAMBANG

2020 ◽  
Vol 4 (3) ◽  
pp. 128-133
Author(s):  
Yudi Arista Yulanda ◽  
M. Taufik Toha ◽  
Fahrurrozi Syarkowi
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Net Present Value ◽  
Spot Price ◽  
Present Value ◽  
Discounted Cash Flow

Harga batubara acuan pada bulan Januari 2020 adalah 65.93 USD/ton turun jauh dari tahun 2018 dimana harga batubara acuan sempat mencapai 107.83 USD/ton pada bulan Agustus. Dalam upaya menaikkan ratio elektrifikasi dalam RUPTL PLN 2018-2027 PLTU Mulut Tambang mendapatkan porsi 11 persen dengan peningkatan jumlah pembangkit setiap tahun nya. Keberadaan Batubara sebagai sumber daya alam yang terbatas dan tidak dapat diperbaharui menuntut penerapan prinsip konservasi cadangan batubara untuk mengoptimalkan keuntungan dan cadangan dengan memilih Stripping Ratio yang optimum. Tujuan penelitian ini yaitu untuk menentukan Stripping Ratio Optimum yang akan memberikan keuntungan terbaik menggunakan metode discounted cash flow sehingga batas penambangan optimum (Ultimate Pit Limit) juga dapat ditentukan. Optimasi ini dilakukan dengan men-generate data variasi Stripping Ratio yang menggambarkan pit limit dan cadangan dari masing-masing stripping ratio tersebut kemudian memasukkan konsiderasi ekonomi yang di discount rate untuk mendapat angka Net Present Value (NPV) sehingga bisa dianalisis dalam kurva optimasi. Hasil penelitian adalah Stripping Ratio optimum berdasarkan kurva optimasi dengan metode Konvensional NPV skenario Spot Price adalah 4.5 dengan total cadangan 7.5jt MT dan umur tambang 8 Tahun serta NPV 21,7 juta US$.

scholarly journals An analysis of capital budgeting methods, the cost of capital and decision-makers in listed South African firms

2012 ◽  
Vol 9 (2) ◽  
pp. 519-529
Author(s):  
John H. Hall
Keyword(s):  
South African ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Capital Budgeting ◽  
Decision Makers ◽  
Internal Rate Of Return ◽  
Present Value ◽  
The Cost ◽  
Academic Qualifications ◽  
A Company

This study’s purpose was to link the length of decision-makers’ employment in a firm and their academic qualifications to their choice of capital budgeting methods and of cost of capital techniques. The results show that the net present value (NPV) is more popular than the internal rate of return (IRR) as a capital budgeting technique. Also, irrespective of how long respondents have been employed by a company, they all use a discount rate. However, there is a significant tendency among respondents with postgraduate qualifications to prefer the NPV as a capital budgeting technique. Thus, in South Africa, academic qualifications do play a role in decision-makers’ capital budgeting practices.

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