Value Assessment: Investment Assessment for Shareholder Value (Second Edition)

Author: (English) Ian Hirst
Publisher:
Publish Date: 2005-06-01
Features: This book introduces the basic knowledge of Net Present Value (NPV) and Capital Cost. It examines the practical issues involved in applying fundamental principles such as cash flow and risk-adjusted returns. It explains the NPV technique and explores two methods for calculating NPV. First, the Weighted Average Cost of Capital (WACC) method is a simple but imprecise approach widely used, especially for projects of medium scale or representing company activities, and it is particularly suitable for decentralized evaluation processes. The other method is the Adjusted Present Value (APV) method, which is more complex but more precise and allows the inclusion of specific financing schemes related to the project in the analysis. The main issues in project evaluation are related to risk. Risk analysis examines several methods used to modify the evaluation to account for the range of possible outcomes. These methods include: sensitivity analysis, Monte Carlo simulation analysis, real options analysis, and a special evaluation method that examines three scenarios where special evaluation methods can be applied: cross-border investment, asset replacement and timing selection, and lease analysis. Additionally, the author provides an example of a set of appropriate standard information that should be included in an investment allocation application, offering management insights into the evaluation process.