scholarly journals Risk analysis and evaluation of capital investment projects

2001 ◽  
Vol 4 (2) ◽  
pp. 398-411 ◽  
Author(s):  
J. H. Hall
Keyword(s):  
Risk Analysis ◽  
South African ◽  
Capital Investment ◽  
Cash Flows ◽  
Capital Investments ◽  
Investment Projects ◽  
Analysis And Evaluation ◽  
Subjective Estimates ◽  
The Empirical Analysis ◽  
Risk Concept

In determining the feasibility of projects where capital investments are concerned, various methods are used. The focus of these methods is on return per se, so it is often asked to what extent any of these methods take the risk concept into account. The main objective of this study was to investigate the importance of risk with regard to capital investment projects. Secondly, with the aid of an empirical study, the study tried to establish whether risk is incorporated when South African companies evaluate capital investment projects. The empirical analysis indicated that risk analysis and evaluation in practice are to a large extent neglected by South African companies. It was found that nearly a quarter of companies estimate their annual cash flows using management subjective estimates alone.

scholarly journals Russian capital investment dynamics as an economic transformation factor

2019 ◽  
Vol 89 (10) ◽  
pp. 981-992
Author(s):  
Aleksey V. Alekseev ◽  
Natalia N. Kuznetsova
Keyword(s):  
Global Economy ◽  
Capital Investment ◽  
Large Scale ◽  
Economic Transformation ◽  
Capital Investments ◽  
Economic Activities ◽  
Investment Projects ◽  
Use Of Resources ◽  
Investment Process

By comparing Russian and American capital investment programs according to gross and per capita indexes, this article analyzes capital investments long-term dynamics in economic activities in general and manufacturing in particular. Results showed that Russian economic growths quality, determined by its 2000 capital investment structure did not correspond with the national economys long-term development aims. Moreover, investment activitys current fading appears consequent to that periods inappropriate investment politics. The existing Russian investment system aims to incorporate its economy into the global economy as a supplier of natural and, partly, agricultural resources, thus dooming manufacturing to stagnation at best. The authors reveal that activation of industrial politics, established on a fundamental power-of-the-state approach in the investment process, based on long-term strategic interests and the potential of market forces (namely, efficiency use of resources) allows launching large-scale investment projects to provide favorable conditions for creating an innovative national economy.

scholarly journals Uncertainty Analysis in Project Appraisal*

1976 ◽  
Vol 1 (1) ◽  
pp. 21-30
Author(s):  
M. Meenakshi Malya
Keyword(s):  
Sensitivity Analysis ◽  
Risk Analysis ◽  
World Bank ◽  
Capital Investment ◽  
Formal Approach ◽  
Investment Projects ◽  
Project Appraisal ◽  
The World Bank ◽  
The World ◽  
Methodological Problems

One of the inherent characteristics of capital investment projects is the presence of uncertainties in estimated outlays and future benefits. The concept of sensitivity analysis in project appraisal has been recently extended to include risk analysis. The assessment of the nature and magnitude of uncertainties poses methodological problems. The complexities arising out of interdependencies among the uncertainties necessitate a formal approach to risk analysis. A methodology for assessing the uncertainties, especially when they are interdependent, is outlined here. The application of the methodology is illustrated in the context of a project financed by the World Bank.

Purchasing power return, a new paradigm of capital investment appraisal

2018 ◽  
Vol 44 (2) ◽  
pp. 241-256 ◽  
Author(s):  
David DeBoeuf ◽  
Hongbok Lee ◽  
Don Johnson ◽  
Maksim Masharuev
Keyword(s):  
Capital Investment ◽  
Net Present Value ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Purchasing Power ◽  
New Paradigm ◽  
Content Type ◽  
Investment Projects ◽  
Investment Appraisal ◽  
The Many

Purpose The purpose of this paper is to contribute to financial managers’ capital budgeting decision-making processes by proposing a new paradigm of capital investment appraisal. The expected return, required return structure of the proposed purchasing power return (PPR) methodology eliminates the many flaws associated with the competing internal rate of return (IRR) and modified IRR (MIRR) techniques. Design/methodology/approach The authors provide a new framework for examining long-term investment projects through a percentage return prism. Unlike that of IRR and MIRR, mathematical consistency with net present value (NPV) is a design requirement. Findings PPR eliminates the many flaws found in the IRR and MIRR methodologies, is mathematically consistent with NPV, and identifies positive-NPV investments forecasted to reduce the company’s purchasing power. These projects are acceptable under NPV, but flagged for additional review and potential rejection. Created to examine projects on a percentage return basis, PPR employs market-based inflation rates to convert all cash flows into constant purchasing power units of measure. From these units, an expected real return is estimated and compared to the project’s inflation-adjusted required return, resulting in an accept/reject decision consistent with that of NPV. Originality/value The proposed PPR is a new paradigm of capital investment appraisal that eliminates the many problems found in the IRR and MIRR techniques, is mathematically consistent with the NPV method, and helps financial decision makers examine investment projects on an expected percentage return basis. PPR also flags for further review projects expected to actually reduce the company’s purchasing power.

scholarly journals The Importance of Capital Investment and Debt Financing in Deriving Shareholders’ Value; A Literature Survey

2021 ◽  
pp. 22-30
Author(s):  
Muzammil Hanif ◽  
Mohd Norfian Alifiah
Keyword(s):  
Decision Making ◽  
Capital Investment ◽  
Cash Flows ◽  
Debt Financing ◽  
Strategic Decision ◽  
Capital Investments ◽  
Managerial Decision ◽  
Financing Decisions ◽  
Free Cash Flows ◽  
Interest Payments

Shareholders’ value is the most important goal and an integral part of the companies’ strategic decision-making process. When a corporate performs well and creates value for its shareholders, it benefits the whole economy. The past studies concluded that efficient decision making in the areas of capital investments and debt financing can ensure high financial performance and shareholders’ value creation. This paper thoroughly reviews the literature on impact of capital investment and debt financing decisions on shareholders’ value. Capital investment is a very important managerial decision because it increases company's economic profit. However, past studies have found that not every time the capital investment results in increasing the value as it may vary with the level of investment. Moreover, debt financing lowers the free cash flows due to the payment of fixed interest payments, thus lowering shareholders' return and value. Therefore, this paper recommends the need of further research to better understand the effect of capital investment and debt financing decisions on shareholders’ value.

scholarly journals Determinants of Working Capital Investment in South Africa: Evidence from Selected JSE-Listed Firms

2014 ◽  
Vol 6 (7) ◽  
pp. 569-580 ◽  
Author(s):  
Farai Kwenda
Keyword(s):  
Capital Investment ◽  
Stock Exchange ◽  
Generalized Method Of Moments ◽  
Cash Flows ◽  
Adjustment Process ◽  
Capital Investments ◽  
Working Capital ◽  
Listed Firms ◽  
Johannesburg Stock Exchange ◽  
State Of The Economy

This paper analyses the determinants of working capital investments of 92 companies listed on the Johannesburg Stock Exchange (JSE) over the period 2001-2010. Working capital management has grown in significance from being a survival issue to a strategic and competitive tool. Using the Generalized Method of Moments estimation, the study found that firms pursue target levels of current assets. However, the adjustment process is relatively slow. The study found that leverage, short-term finance and fixed investment significantly influence the level of working capital investment, while operating cash flows, state of the economy, firm size and sales growth rate were found to be statistically insignificantly related to working capital investment. The study recommends that managers understand the driving factors of working capital investment since working capital investment influences the value of the firm.

scholarly journals FORMATION OF MEHTODOLOGICAL PRINCIPLES FOR ASSESSING ECONOMIC EFFICIENCY OF INVESTMENT PROJECTS FOR CREATION AND DEVELOPMENT OF SEAPORTS AND TERMINALS

2019 ◽  
pp. 125-132
Author(s):  
Marina Vladislavovna Sabaydash
Keyword(s):  
Capital Investment ◽  
Economic Effect ◽  
Capital Investments ◽  
Complex Composition ◽  
Sea Transport ◽  
Investment Projects ◽  
Technological Processes ◽  
Comparative Efficiency ◽  
Modern Computer ◽  
Technical And Economic Indicators

The article presents the methods for evaluating the effectiveness of investment projects developed by foreign, Soviet and later Russian scientists that made it possible to formulate principles for evaluating the effectiveness of projects of creating and developing seaports and terminals. The basic economic law of socialism in 1952 has been analyzed, according to which the development of the command economy was exhausted by planned extensive and intensive economic growth in the absence of inflation and risks. There has been studied the typical methodology for determining the effectiveness of capital investments and new equipment developed in 1960 and proposing to use two groups of indicators: general and comparative efficiency. It has been stated that the main drawback of this and later methods is to reject the indicator of absolute economic effect. There are given formulas for calculating the payback period and the effect of increasing operation of sea transport due to capital investments. There has been defined the principle of alternativeness based on accounting for the opportunity costs of neoclassical economics. Modern computer technologies make it possible to accurately simulate the technological processes of the port terminal and, using the results, to calculate the technical and economic indicators of their activities. The principle of alternativeness consists in considering all possible options for organizing technological processes at the terminal and choosing the option with best values of performance. The principle of alternativeness should be used to assess the effectiveness of the project as a whole and to evaluate the effectiveness of each participant. Projects of building and development of seaports and terminals are characterized by a complex composition of participants; they always impact the state interests and are a form of public-private partnership. The main infrastructure of seaports and land plots are in federal ownership. The implementation of the principle of alternativeness becomes possible when using the capital investment budget method.

scholarly journals Ways of improving the efficiency of capital investments into the infrastructure in order to adapt it to ensure accessible environment

2021 ◽  
Vol 2021 (4) ◽  
pp. 591-600
Author(s):  
Timofey M. SHMANYOV ◽  
◽  
Victoria I. ULYANITSKAYA ◽  
Igor V. VANYUSHIN ◽  
Marina S. PUKHOVA ◽  
...  
Keyword(s):  
Graphical Models ◽  
Comparative Advantage ◽  
Capital Investment ◽  
Practical Importance ◽  
Capital Investments ◽  
Dynamic Changes ◽  
Investment Projects ◽  
Full Life Cycle ◽  
Proposed Model ◽  
Functional Areas

Objective: Formation of a unifi ed approach and adaptation of infrastructure facilities through the prism of rational use of capital funds and through the principle of comparative advantage based on opportunity cost. Methods: The main tools of analysis and management, the principle of comparative advantage, dynamic changes, schemes graphical models describing algorithms or processes, etc. are applied. Results: An analysis of possible ways of capital investment is carried out, with the fi nal comparability of the conditions and amounts spent on the adaptation of the main functional areas and infrastructure elements, taking into account the principles of “universal designˮ and “reasonable adaptationˮ. Practical importance: The proposed model is dynamic and can be applied as a criterion for the effectiveness of investments, both for individual investment projects and for investment programs in the full life cycle, including the operational stage.

scholarly journals Capital Investments and Stock Returns

2004 ◽  
Vol 39 (4) ◽  
pp. 677-700 ◽  
Author(s):  
Sheridan Titman ◽  
K. C. John Wei ◽  
Feixue Xie
Keyword(s):  
Stock Returns ◽  
Capital Investment ◽  
Cash Flows ◽  
Capital Investments ◽  
Equity Issue ◽  
Hostile Takeovers ◽  
Empire Building ◽  
Investment Return ◽  
Return Reversal

AbstractFirms that substantially increase capital investments subsequently achieve negative benchmark-adjusted returns. The negative abnormal capital investment/return relation is shown to be stronger for firms that have greater investment discretion, i.e., firms with higher cash flows and lower debt ratios, and is shown to be significant only in time periods when hostile takeovers were less prevalent. These observations are consistent with the hypothesis that investors tend to underreact to the empire building implications of increased investment expenditures. Although firms that increase capital investments tend to have high past returns and often issue equity, the negative abnormal capital investment/return relation is independent of the previously documented long-term return reversal and secondary equity issue anomalies.

Decision Making Under Uncertainty in Pipeline Projects Using Monte Carlo Simulation

2004 ◽  
Author(s):  
Claudio de Brito Garcia ◽  
Leandro Bastos Machado
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Risk Analysis ◽  
Capital Investment ◽  
Net Present Value ◽  
Investment Project ◽  
Free Cash Flow ◽  
Investment Projects ◽  
Economical Analysis ◽  
Natural Gas Transmission

Uncertainty about a situation can often indicate risk, which is the possibility of loss, damage, or any other undesirable event. Most people and organization desire low or minimized risk, which would translate to stand to a scenario of high probability of success, profit, or some form of gain. This work shows the importance of risk analysis when it comes to compare two capital investment projects in the natural gas transmission business. A transmission company needs to choose between two alternatives for capacity expansion of a pipeline, with a maximum value for the transmission tariff previously agreed to the shipper. At first, the transmission tariff is calculated by the conventional method that comprises iterative calculation from an arbitrary value, until the project Net Present Value (NPV) reaches zero. Once calculated, the lower of the transmission tariffs associated to the two expansion projects indicates the best choice. That’s the way the majority of companies perform their economical analysis of the proposed problem. Monte Carlo Simulation risk analysis technique is a powerful tool to asses the risk associated to a capital investment project, which can be summarized as the probability of undesired results. The risk calculation is based on the uncertainties associated to the input data used to build the project free cash flow, and the simulation produces a frequency distribution, or histogram, for, the NPV of a project. As will be seen in the work, the investment with the largest expected NPV may not always be the best investment alternative.

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