Valuation techniques for infrastructure investment decisions

Abstract

Public infrastructure owners are increasingly soliciting BOT arrangements to deliver needed infrastructure facilities. Such arrangements potentially preserve a public owner's capital capacity for allocation to projects that cannot support themselves by essentially 'pulling' projects from the private sector. Before soliciting these arrangements, however, owners should independently evaluate a project's economic viability to fully appraise the issues and variables involved. Unfortunately, project analysts often apply evaluation methods without regard for their assumptions and limitations. A case study of a toll road project in the USA provides the basis for examining the assumptions behind both traditional and option valuation models. The case demonstrates the use of an option pricing model to augment traditional project evaluation by capturing strategic considerations, in this case the value of project deferment. The presentation illustrates that the selection of a valuation model depends critically upon the characteristics of a project's variables and that informed judgment remains an integral part of the decision-making process.Valuation techniques, infrastructure investments, real options, risk neutrality,

Procurement with Unenforceable Contract Time and the Law of Liquidated Damages

“…If, regardless of what the actual loss turns out to be, the stipulated amount of compensation exceeds the probable loss, it is a penalty. 16 The scope of this section is to analyze the e¤ects of introducing a liquidated damages clause upon the parties'expected payo¤s.…”

“…The …rst is that on the real-option approach, which has been applied in several areas, but has not been extensively used to address procurement topics. The available works mostly focus on the evaluation, from a contractor's perspective, of a project embedding some elements of managerial ‡exibility (see, for example, Ford et al, 2002;Ho and Liu, 2002;Garvin and Cheah, 2004), without addressing the e¤ects of ‡exibility on agents' bidding behaviour. One of the few exceptions is the paper by You and Tam (2006) who, however, do not employ a game-theoretic framework to analyse how managerial discretion in ‡uences 3 Resolution 78(3) adopted by the Committee of Ministers on January 20, 1978.…”

What Are the Top Variables Leading to Strategic Investment Decision Making Performance

“…Thus, we used the case study method to replicate most SID research conducted in order to determine the relevance of the factors influencing the success of SIDs to the eastern context. Similar to past SID research that uses single country variables [7], [8] Singapore as the main single country variable is used. To ensure reliability and validity in this research, care is taken to ensure consistency of organisations.…”

Appraisal of Combined Agreements in Bot Project Finance: Focused on Minimum Revenue Guarantee and Revenue Cap Agreements

“…Leviäkangas and Lähes-maa (2002) suggested the option approach is a useful valuation tool for intelligent transport system investments. Garvin and Cheah (2004) and Ford et al (2002) used a option pricing approach to quantify a deferment option in a toll road project and to value the design flexibility in an engineering project respectively. Wooldridge et al (2002) evaluated the flexibility in toll road project considering the option pricing theory with a case of Dulles Greenway.…”