The cost of capital and its impact on the methods of discounted cash flow
DOI:
https://doi.org/10.5377/nexo.v25i1.793Keywords:
DCF, cost of capital, mutually exclusive alternatives, project profitabilityAbstract
A techno-economic feasibility study in any branch of engineering or any kind of business involves knowing a measure of the investment profitability. Currently, no one discuss that for a solid basis decision making it should be used discounted cash flow (DCF), despite the persistence of a widespread forms (i.e. payback period, benefit / cost). The objective of this paper is to analyze, critically, the relevance of the methods used to make comparisons between mutually exclusive projects as well as suggest alternative ways of analysis that consider the impact of different rates of capital cost and constrain the decision in an appropriate way. The proposal presented here allows exclusive alternatives ordering with an approach that include a more complete view on the problem. The most interesting result is related to the sensitivity of the methods on the inherent decision variables involved in them.
DOI: http://dx.doi.org/10.5377/nexo.v25i1.793
Nexo Revista Científica,Vol. 25, No. 01, pp.18-21/Junio 2012
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