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Project Valuation : Price Forecasts Bound to Discount Rates

For their appraisals, most companies use discount rates that account for timing and riskiness of projects. Yet, especially for commodity projects, discounting future cash flows is generally at odds with the assumptions in a company’s hurdle rate. With a multitude of technical and market uncertainties, inconsistent assessments lead to biased valuations and poor investment decisions. In this paper, we consider price forecasts and discount rates in an integrated framework. We calibrate the risk premiums in a two-factor stochastic price process with a capital asset pricing model-based discount rate. Together with the analysts’ long-term prices forecasts, the suggested method improves consistency in valuation and decision making.

Ketersediaan

Informasi Detail

Judul Seri

DECISION ANALYSIS; Vol.18 No.2 June 2021

No. Panggil

-

Penerbit

: .,

Deskripsi Fisik

p. 139 - 152

Bahasa

English

ISBN/ISSN

-

Klasifikasi

NONE

Tipe Isi

-

Tipe Media

-

Tipe Pembawa

-

Edisi

-

Subjek

CAPM
RISK PREMIUMS
COMMODITY PRICE UNCERTAINTY
PROJECT APPRAISAL
RISK NEUTRAL
APPLICATION IN PETROLEUM INDUSTRY

Info Detail Spesifik

https://doi.org/10.1287/deca.2021.0428

Pernyataan Tanggungjawab

Babak Jafarizadeh, Reidar B. Bratvold

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