Risk-adjusted discount rates and the present value of risky nonconventional projects

Kastro, Anastasia N. Blaset; Kulakov, Nickolay Yu

doi:10.1080/0013791x.2020.1815918

Cited by 3 publications

(4 citation statements)

References 26 publications

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“…Now, let us consider the state of affairs with an assessment of the integral risk of IP in the case of high certainty. Of all conventional methods, the discount rate correction method is mainly used for this purpose [4,15]. At the same time, the risk of IP as a whole is assessed either by in-house procedures or by an expert method, i.e.…”

Section: Discussion Of the Results Obtained In The Study Of Risks Of ...mentioning

confidence: 99%

“…The main disadvantages of this method consist of its one-factor nature and determinism. The method of risk-adjusted discount rate is used in [15] to estimate stochastic negative flows of project payments. The proposed approach is not universal: it is more suitable for estimating money flows with opposite signs.…”

Section: Literature Review and Problem Statementmentioning

confidence: 99%

“…If the IP allows for the possibility of interactive intervention in the course of its implementation, then one can try to adjust the values of its parameters so that the values of all margins (12) to (15) become positive and as large as possible. If relative margins (12) to (15) are positive, then the IP has a certain margin of financial stability according to the listed parameters. Moreover, the greater the value of the relative margin for some project parameter, the less the risk of unacceptably low profitability of the project associated with this parameter.…”

Section: Assessment Of the Risk Of Unacceptably Low Profitability Of ...mentioning

confidence: 99%

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Development of a systems approach to assessment of investment project risks: risks of unacceptably low project profitability

Vasiliev

Vasilieva

Tupko

2022

EEJET

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A new systems approach to quantitative estimation of financial risks of investment projects was proposed: an integral risk of the project as a whole for all its parameters at once and the risks for each of its parameters separately. At the same time, the very concept of the project risk has been generalized: instead of the conventional risk of unprofitability, a new, more general concept of the risk of unacceptably low project profitability has been introduced. Two levels of the project profitability were considered: a level acceptable to the investor and a realistically achievable level. Corresponding values of design parameters and indices of financial efficiency of the project were found for these levels. Based on the found values, relative margins of investment acceptability and risks of unacceptably low profitability of the project were calculated. A procedure of comprehensive assessment of the risk of unacceptable low profitability of the project for cases of high certainty and partial uncertainty has been developed. Explicit formulas for quantitative risk assessment of unacceptably low profitability of the project have been derived, ranges of values of all risks under consideration have been determined and appropriate recommendations have been given. Explicit formulas for calculating the values of project risks and dynamic points of project acceptability are convenient and useful for software implementation (for example, within the Monte Carlo method). For the Monte Carlo method and the method of scenarios, another alternative approach to assessing the integral risk of unacceptably low project profitability was proposed by the authors based on the direct calculation of unacceptable scenario values of any criterion of the project financial efficiency. A new index of financial efficiency of the project has also been introduced: a discounted period of acceptable return (discounted payback period of the project is its special case).

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Section: Discussion Of the Results Obtained In The Study Of Risks Of ...mentioning

confidence: 99%

Section: Literature Review and Problem Statementmentioning

confidence: 99%

Section: Assessment Of the Risk Of Unacceptably Low Profitability Of ...mentioning

confidence: 99%

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Development of a systems approach to assessment of investment project risks: risks of unacceptably low project profitability

Vasiliev

Vasilieva

Tupko

2022

EEJET

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“…The Net Present Value (NPV) method involves discounting of future cash flows back to present value (Blaset Kastro, Kulakov, 2020. ) Based on this criterion, those projects whose net present value is higher than zero are eligible.…”

Section: Capital Budgetingmentioning

confidence: 99%

Cash Flow Forecasting for International Projects in the Process of Capital Budgeting During the Covid-19

Pejović¹,

Trifunović²,

Živaljević³

2020

Fourth International Scientific Conference ITEMA Recent Advances in Information Technology, Tourism, Economics, Management and

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By predicting cash flows in the capital budgeting procedure, the profitability of an investment at the international level is determined in advance. Although investing globally provides greater opportunities for earnings, cost reduction and business diversification, all risks posed by international business must be considered when choosing a discount rate. In addition to the risks inherent in cross-border business such as exchange rate risk, country risk, the risks caused by the pandemic crisis, which relate primarily to measures taken by states to protect the population by introducing quarantine, restricting the flow of people, goods and capital, as well as activities that are endangered by a pandemic, must be considered too. If all the risks that determine the discount rate are well assessed, the cash flow forecast will be more accurate.

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The S curve: A dynamic view of in ERP evaluation

Ulhas

Tan

et al. 2023

The Engineering Economist

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Risk-adjusted discount rates and the present value of risky nonconventional projects

Cited by 3 publications

References 26 publications

Development of a systems approach to assessment of investment project risks: risks of unacceptably low project profitability

Development of a systems approach to assessment of investment project risks: risks of unacceptably low project profitability

Cash Flow Forecasting for International Projects in the Process of Capital Budgeting During the Covid-19

The S curve: A dynamic view of in ERP evaluation

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