• Title, Summary, Keyword: Net Present Value Method

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Valuation of Two-Stage Technology Investment Using Double Real Option (이중실물옵션을 활용한 단계별 기술투자 가치평가)

  • 성웅현
    • Journal of Korea Technology Innovation Society
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    • v.5 no.2
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    • pp.141-151
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    • 2002
  • Many technology investment projects can be considered as set of sequential options. A compound real option can be used for evaluating sequential technology investment decisions under significant uncertainty and measuring its value. In this paper, the formula developed by Geske and Johnson(1984) and Buraschi and Dumas(2001) was applied to evaluate the technology investment with related double real option. Also double real option was com-pared with net present value method and multiple linear regression model was used to assess the partial effects of risk free rate and log-term volatility on its value.

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Method to Select Optimal Device for Mitigating Voltage Sag Based on Voltage Sag Assessment (순간전압강하 평가에 기반한 최적 보상기기 선정 방법)

  • Lee, Kyebyung;Han, Jong-Hoon;Jang, Gilsoo;Park, Chang-Hyun
    • The Transactions of The Korean Institute of Electrical Engineers
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    • v.64 no.1
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    • pp.29-34
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    • 2015
  • This paper presents a method to select optimal device for mitigating voltage sags. The method is based on economic evaluation and voltage sag assessment involving sag duration as well as magnitude. The economic evaluation is performed by using the operation cost and economic benefit of the mitigation devices. The optimal device can be determined from the values of NPV (net present value) which is widely accepted in cost-benefit analysis. The proposed method can help sensitive customers to select optimal mitigation device. In this paper, the case study considering two sensitive customers was performed by using the proposed method.

Understanding of a Rate of Return Analysis using an IRR (내부수익률을 이용한 수익률분석법에 대한 이해)

  • 김진욱;이현주;차동수
    • Journal of the Society of Korea Industrial and Systems Engineering
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    • v.25 no.5
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    • pp.9-14
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    • 2002
  • A capital investment problem is essentially one of determining whether the anticipated cash inflows from a proposed project are sufficiently attractive to invest funds in the project. The net present value(NPV) criterion and internal rate of return(IRR) criterion are widely used as means of making investment decisions. A positive NPV means the equivalent worth of the inflows is greater than the equivalent worth of outflows, so, the project makes profit. Business people are familiar with rates of return because they all borrow money to finance ventures, even if the money they borrow is their own. Thus they are apt to use the IRR in preference to the NPV. The IRR can be defined as the discount rate that causes the net present value of a cash flow to equal zero. Why the project are accepted if the project's IRR is greater than the investor's minimum attractive rate of return\ulcorner Against the NPV, the definition cannot distinctly explain the concept of the IRR as decision criterion. We present a new definition of the IRR as the ratio of profit on the invested capital.

Estimation of Internal Friction Angle by the Back Analysis on Collapsed Rock Slope (붕괴된 암반사면에서 역해석에 의한 내부마찰각의 추정)

  • 이달원;김갑중
    • Magazine of the Korean Society of Agricultural Engineers
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    • v.45 no.6
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    • pp.172-182
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    • 2003
  • In this study, the back analysis was performed by means of stereo-net, plane failure and block failure method to collapsed fields among the rock slopes designed by standardized criterion, and the internal frictions from the back analysis were compared with those used to reinforcement design. It was concluded that in the result of the analysis by means of stereo net, plain failure and block failure methods, the internal frictions used to re-design of collapsed slope underestimated 10$^{\circ}$, 5$^{\circ}$ and 10$^{\circ}$ in average. At present, the internal friction on the design is used the experience value according to the state of weathering, but internal friction angle by the back analysis on collapsed slope with various methods were more reliable values than those from the present method. And it was concluded that re-design was made extravagantly because the internal friction used to re-design for reinforcement of the collapsed slope was less than back analysis.

Economic Evaluation Method Based on Rate of Return for Multiple Investment Alternatives (다수의 투자대안들에 대한 수익률 기준의 경제성 평가방법)

  • Kim, Jin Wook
    • Journal of the Society of Korea Industrial and Systems Engineering
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    • v.42 no.1
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    • pp.137-142
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    • 2019
  • There are two methods for evaluating two or more mutually exclusive projects. One is a total investment approach and the other is an incremental investment approach. The former can rank projects by the criterion of the net present value, but the latter can't do it. An incremental investment approach is only possible when all pairwise alternatives are compared. Thus an incremental investment approach is superior in ranking them over an incremental investment approach. To do so, a principle of comparison must be established. Comparisons of profitability are reasonable when operating the same amount of investment over the same period of time. One principle is that all projects are invested in the largest of the projects. Another principle is that all projects are invested during the longest project life of the projects. In this paper, even if the principle is followed, it will be shown that the external rate of return fails to rank them. However, the productive rate of return criterion would prove to be able to rank them like the net present value standard, provided that the principle of comparison is kept. In addition, rate of returns can be assessed so that all mutually exclusive projects can be compared at once, such as on the criterion of the net present value. That is, it can be also compared with many other returns, such as the profit rates on financial investments or real investments.

Economic Analysis of pay-Fishing Construction Business (유료 낚시터 조성사업의 경제성 분석)

  • SONG, Jung-Hun;KIM, Do-Hoon
    • Journal of Fisheries and Marine Sciences Education
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    • v.27 no.4
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    • pp.1092-1098
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    • 2015
  • Fishing population has been increasing with national income improvement and the five-day workweek in Korea. Recently commercial fishing facilities like pay fishing pond are emerging as demand of saltwater fishing increases, unlike the past when inland fishing was prominent. In order to do businesses, economic analysis should be done in advance. This study aimed to make an Economic analysis of Uljin pay-fishing place by estimating the cost and benefit, and calculating the rate of economic return. The results show the Uljin pay-fishing place's net present value of 3.5 billion won, internal rate of return of 14%, and benefit cost ratio of 1.16 at 5.5% social discount rate.

Economic Evaluation of ESS in Urban Railway Substation for Peak Load Shaving Based on Net Present Value

  • Park, Jong-young;Heo, Jae-Haeng;Shin, Seungkwon;Kim, Hyungchul
    • Journal of Electrical Engineering and Technology
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    • v.12 no.2
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    • pp.981-987
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    • 2017
  • In this paper, we estimate the economic benefits of Energy Storage Systems (ESSs) for peak load shaving in an urban railway substation using the annual cost. The annual investment cost of ESSs is estimated using Net Present Value (NPV) and compared with the cost reduction of electricity by the ESS. The optimal capacities of the battery and Power Converting System (PCS) are determined for peak load shaving. The optimal capacity of the ESS and the peak load shaving is determined to maximize the profit by the ESS. The proposed method was applied to real load data in an urban railway substation, and the results show that electric power costs can be reduced. Other aspects of the ESS, such as the lifetime and unit price of the battery, are also investigated economically.

A Comparative Study on ACH and Fedwire as a Cross-Border Payment System (국제전자결제시스템으로서 ACH와 Fedwire의 비교연구)

  • Lee, Byeong-Ryul
    • International Commerce and Information Review
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    • v.10 no.1
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    • pp.139-154
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    • 2008
  • This research want to discuss some issues about payment system of America. This research focuses on comparing ACH with Fedwire. Firstly Fedwire is the payment system for only large-dollar transfer(Large-Value Transfer System; LVTS), while ACH(Automated Clearing House)payment mainly applies a consumer account. Secondly ACH transaction is either credit or debit transfer, while Fedwire is only credit transfer. Thirdly the communication system of Fedwire has twoway method, telephonelike communication network, but ACH is oneway store and forward electronic mail. At present LVTS divides into RTGS(Real-Time Gross Settlement) and DNS(Deferred Net Settlement). However Fedwire uses either RTGS(instantaneous for every transaction) or DNS(net net transaction) but ACH uses only DNS(net net transaction). Fourthly ACH is substantially cheaper than the Fedwire payment. lastly security is important in both Fedwire and ACH, it is even more crucial in Fedwire In addition, for each transaction, Fedwire may entail individual instantaneous confirmation to the originator and notification to the receiver, whereas ACH do not.

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Real Option Analysis on Ship Investment Valuation

  • Kim, Chi-Yeol;Ryoo, Dong-Keun;Kim, Jae-Kwan
    • Journal of Navigation and Port Research
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    • v.33 no.7
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    • pp.469-476
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    • 2009
  • Recent collapse of shipping market right after unprecedent surge clearly demonstrates that shipping industry is extremely risky. Due to the volatile movements of the freight rates, investors tend to ask higher rate of return; higher required return reduces the total net present value of the investment project. For several decades, the Discounted Cash Flow(DCF hereafter) analysis has been the most frequently used valuation technique. However, the main problem of the DCF analysis is its assumption that the discount rate would stay the same during the project life. In other words, it usually does not address the decisions that managers have after a project has been accepted. The purpose of this study is investigate a new valuation method of investment: the Real Option Analysis(ROA hereafter) on ship investment. By replacing the existing valuation methods with the new one, the research will present a new perspective on investment with uncertainty. While uncertainty increases risk of investment and consequently discounts the value of it in the traditional feasibility analysis, in the ROA, a new valuation method which will be addressed in the research, uncertainty means some additional value of flexibility so that the tool can help investors produce more accurate decisions. Contrary to the DCF analysis, the ROA takes managerial flexibilities into account. In reality, capital budgeting and project management is typically dynamic, rather than static in nature. The ROA finds and assesses the values of managerial flexibilities or real options in the investments. The main structures of the research will be as follows: (1) overview of the ship investment project, (2) evaluation of the project by the Net Present Value analysis, (3) evaluation of the same project by the Real Option Analysis, (4) comparision of the two techniques.

Economic Analysis of Power Transmission Lines using Interval Mathematics

  • Teegala, Srinivasa Kishore;Singal, Sunil Kumar
    • Journal of Electrical Engineering and Technology
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    • v.10 no.4
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    • pp.1471-1479
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    • 2015
  • A major portion of the capital costs in the present day power transmission systems are due to the cost of equipment and construction process. Transmission utilities in the recent years are drawing greater attention towards performing life cycle costing studies for cost management and decision making. However, the data involved in these studies are highly uncertain and the effect of these uncertainties cannot be directly included in the study process, resulting in inaccurate solutions. Interval mathematics provides a method for including these uncertainties throughout the cost analysis and provides final solution range in the form of intervals. In this regard, it is essential and extremely important that significant research has to be carried out in understanding the principles of life cycle costing methodology and its applicability to cost analysis of transmission lines along with uncertainties involved in the cost assessment process. In this paper, economic analysis of power transmission lines using interval mathematics has been studied. Life cycle costing studies are performed using net present value analysis on a range transmission lines used in India and the results are analyzed. A cost break even analysis considering right of way costs was carried out to determine the point of economy indifference.