NPV-at-Risk Method in Infrastructure Project Investment Evaluation
Publication: Journal of Construction Engineering and Management
Volume 126, Issue 3
Abstract
Strategic capital investment decisions are crucial to a business firm. The decision to invest in privately financed infrastructure projects requires careful consideration, because they are exposed to high levels of financial, political, and market risks. The project appraisal methods should incorporate analysis of these risks. A number of capital-investment decision methods can take risks into account, but each of them focuses on different factors and has its limitations. Thus, a more vigorous method is needed. A systematic classification of existing evaluation methods shows that it is possible to develop a new method—the net-present-value-at-risk (NPV-at-risk) method—by combining the weighted average cost of capital and dual risk-return methods. The evaluation of two hypothetical power projects shows that the NPV-at-risk method can provide a better decision for risk evaluation of, and investment in, privately financed infrastructure projects.
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Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 126 • Issue 3 • May 2000
Pages: 227 - 233
History
Received: Feb 2, 1999
Published online: May 1, 2000
Published in print: May 2000
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