722
Views
7
CrossRef citations to date
0
Altmetric
Articles

DNPV: a valuation methodology for infrastructure and Capital investments consistent with prospect theory

, , &
Pages 259-274 | Received 18 Oct 2018, Accepted 19 Jul 2019, Published online: 08 Aug 2019

References

  • Ang, A., Bekaert, G., and Liu, J., 2005. Why Stocks may disappoint? Journal of financial economics, 76, 471–508.
  • Antia, M., Pantzalis, C., and Park, J.C., 2010. CEO decision horizon and firm performance: An empirical investigation. Journal of corporate finance, 16, 288–301.
  • Ariel, R., 1998. Risk adjusted discount rates and the present value of risky costs. The financial review, 33, 17–30.
  • Ashuri, B., et al., 2012. Risk neutral pricing approach for evaluating BOT highway projects with government minimum revenue guarantee options. Journal of construction engineering and management, 138(4), 545–557.
  • Baker, H., Dutta, S., and Saadi, S., 2011. Management views on real options in capital budgeting. Journal of applied finance, 21(1), 18–29.
  • Barberis, N., Huang, M., and Santos, T., 2001. Prospect theory and asset prices. The quarterly journal of economics, 1, 1–53.
  • Benartzi, S., and Thaler, R.H., 1995. Myopic loss aversion and the equity premium puzzle. The quarterly journal of economics, 110, 1, 73–92.
  • Bhattacharya, S., 1978. Project valuation with mean-reverting cash flow streams. The journal of finance, 33(5), 1317–1331.
  • Block, S., 2007. Are real options actually used in the real world? The engineering economist, 52(3), 255–267.
  • Bogue, M., and Roll, R., 1974. Capital budgeting for risky projects with ‘imperfect’ markets for physical capital. The journal of finance, 29, 601–613.
  • Brennan, M.J., 1973. An approach to the valuation of uncertain income streams. The journal of finance, 28, 661–674.
  • Carmichael, D.G., Hersh, A.M., and Parasu, P., 2011. Real options estimate using probabilistic present worth analysis. The engineering economist, 56(4), 295–320.
  • Charlin, V., and Cifuentes, A., 2019. Real options applied to infrastructure investments: a volatility-free framework based on closed-form expressions. Available from SSRN: https://ssrn.com/abstract=3336296 or http://dx.doi.org/10.2139/ssrn.3336296
  • Cheah, C.Y.J., and Liu, J., 2006. Valuing government support in infrastructure projects as real options using Monte Carlo simulation. Construction management and economics, 24, 545–554.
  • Chiara, N., and Garvin, M.J., 2008. Variance models for project financial risk analysis with applications to greenfield BOT highway projects. Construction management and economics, 26, 925–939.
  • Chiu, W.H., 2005. Skewness preference, risk aversion, and the precedence relations on stochastic changes. Management science, 51, 1816–1828.
  • Constantinides, G.M., 1978. Market risk adjustment in project valuation. The journal of finance, 33(2), 603–616.
  • Copeland, T., and Antikarov, V., 2005. Real options: meeting the Georgetown challenge. Journal of applied corporate finance, 17(2), 23–42.
  • Damodaran, A., 2000. The promise of real options. Journal of applied corporate finance, 13(2), 29–44.
  • Davies, R., Goedhart, M., and Koller, T., 2012. Avoiding a risk premium that unnecessarily kills your project. The McKinsey quarterly, 2, 1–4.
  • Denison, C.A., Farrel, A.M., and Jackson, K.E., 2012. Manager’s incorporation of the value of real options into their long-term investment decisions: An experimental investigation. Contemporary accounting research, 29(2), 590–620.
  • Espinoza, R.D., 2014. Separating project risk from the time value of money: a step toward integration of risk management and valuation of infrastructure investments. International journal of project management, 32, 1056–1072.
  • Espinoza, R.D., and Morris, J.W.F., 2013. Decouple NPV: a simple method to improve valuation of infrastructure investments. Construction management and economics, 31(5), 471–496.
  • Espinoza, R.D., and Rojo, J., 2015. Using DNPV for valuing investments in the energy sector: a solar project case study. Renewable energy, 75, 44–49.
  • Fama, E., and French, K.R., 1997. Industry cost of equity. Journal of financial economics, 43, 153–193.
  • Fama, E., 1977. Risk-adjusted discount rates and capital budgeting under uncertainty. Journal of financial economics, 5(1), 3–24.
  • Flybvjerg, B., Holm, M.S., and Buhl, S., 2002. Underestimating costs in public works projects: Error or lie? Journal of the American planning association, 68(3), 279–295.
  • Froth, K.A., and Stein, J.C., 1999. Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach. Journal of financial economics, 47, 55–82.
  • Galai, D., 1977. Characterization of options. Journal of banking & finance, 1, 373–385.
  • Garvin, M.J., and Cheah, C.Y.J., 2004. Valuation techniques for infrastructure investment decisions. Construction management and economics, 22(4), 373–383.
  • Giacotto, C., 2007. Discounting mean reverting cash flows with the capital asset pricing model. The financial review, 42, 247–265.
  • Girmscheid, G., 2009. NPV model for evaluating the economic efficiency of municipal street maintenance by private providers. Journal of construction engineering and management, 135(8), 701–709.
  • Graham, J., and Harvey, C., 2001. The Theory and practice of corporate finance: evidence from the field. Journal of financial economics, 60, 8–23.
  • Halliwell, L.J., 2011. The conditional validity of risk-adjusted discounting. Casualty Actuarial Society, E-Forum, Spring.
  • Hamada, R., 1977. Discussion on “Capital budgeting and the capita asset pricing model: good news and bad news. The journal of finance, 32(2), 333–336.
  • Hawas, F., and Cifuentes, A., 2017. Valuation of projects with minimum revenues guarantees: a Gaussian copula-based simulation approach. The engineering economist, 62(1), 90–102.
  • Kahneman, D., and Tversky, A., 1979. Prospect theory: an analysis of decision under risk. Econometrica, XLVIII, 263–291.
  • Liou, F.-M., and Huang, C.-P., 2008. Automated approach to negotiations of BOT contracts with the consideration of project risk. Journal of construction engineering and management, 134(1), 18–24.
  • Luehrman, T., 1998. Strategy as a portfolio of real options. Harvard business review, September-October, 89–99.
  • Lundstrum, L.L., 2002. Corporate investment myopia: a horserace of the theories. Journal of corporate finance, 8, 353–371.
  • Markowitz, H., 1952. Portfolio selection. The journal of finance, 7(1), 77–91.
  • Myers, S. C., 1976. Using simulation for risk analysis. In: S.C. Myers, ed. Modern development in financial management. CT: Praeger Publishers.
  • Myers, S.C., 1984. Finance Theory and Financial Strategy. Midland corporate, finance journal, 5(1), 6–13.
  • Parrino, R., Poteshman, A.M., and Weishbach, M.S., 2005. Measuring investment distortions when risk-averse managers decide whether to undertake risky projects. Financial management, 34, 1, 21–60.
  • Repenning, N.P., and Henderson, R.M., 2010. Making the numbers? “Short Termism” & the puzzle of only occasional Disaster. National Bureau of Economic Research, Working Paper 16367, 1–36.
  • Robichek, A.A., and Myers, S.C., 1966. Conceptual problems in the use of risk-adjusted discount rates. The journal of finance, 21(4), 727–730.
  • Ross, S., 1976. The arbitrage theory of capital asset pricing. Journal of economic theory, 13(3), 341–360.
  • Shackleton, M.B., and Sødal, S., 2005. Smooth pasting as rate of return equalization. Economics letters, 89, 200–206.
  • Sharpe, W.F., 1964. Capital asset prices: A theory of market equilibrium under conditions of risk. The journal of finance, 19(3), 425–42.
  • Sick, G.A., 1986. A Certainty-equivalent approach to capital budgeting. Financial management, 15(4), 23–32.
  • Taleb, N., 2007. Black swans and the domain of statistics. American statistical association, 61(3), 1–3.
  • Triantis, A., 2005. Realizing the potential of real options: does theory meet practice? Journal of applied corporate finance, 17(2), 8–16.
  • Tversky, A., and Kahneman, D., 1991. Loss aversion and riskless choice: a reference dependent model. The quarterly journal of economics, CVII, 1039–1061.
  • van Putten, A.B., and MacMillan, I.C., 2004. Making real options really work. Harvard business review, 82(12), 134–141.
  • Wibowo, A., 2006. CAPM-based valuation of financial government supports to infeasible and risky private infrastructure projects. Journal of construction engineering and management, 132(3), 239–248.
  • Zeckhauser, R.J., and Viscusi, W.K., 2008. Discounting dilemmas: Editors’ introduction. Journal of risk and uncertainty, 37(2-3), 95–106.

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.