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The Research On The Method Of Decision-making Of Project Investment

Posted on:2003-05-15Degree:MasterType:Thesis
Country:ChinaCandidate:J DuFull Text:PDF
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Investment is one of the most important thing in enterprise's financial active.Decision-making of investment is one of the biggest problem that manager needs to solve.So there many research on decision-making of investment and some mature theory has been formed. This article emphasizes on those problems that are important ,but controversial ,for example ,estimating of cash flows,transcanction of risk and inflation.There are many solutions to those problems ,but the solutions are scattered.The object of this article is systematizing the solutions. Because traditional methods of decision-making are confronting more and more doubt,using option theory in decision-making is also the object of this article.Basic technique of decision-making of investment is PB rule,ARR rule ,NPV rule,IRR rule and PI rule .And NPV rule is viewed as a better method.There are two parameters needing to be decided in NPV formula,one is project's cash flows ,the other is project's cost of capital.Estimating cash flows should obey the basic principle:with/without principle . Relevant cash flows and irrelevant cash flows of project should be distinguished. Opportunity cost and cost of sales' losing is the center of solution. During deciding cost of capital risk of investment in project should be thought of .Analyzing risk of investment well is critical to deciding project's cost of capital.Enterprise is influenced by macro-economy ,so inflation should be thought of when doing decision-making . There is flaw in traditional decision-making method itself. Application of option theory in decision-making can make up with the flaw. So in this article Black-Scholes model is used in evaluate project's value.
Keywords/Search Tags:Decision-making of investment, Risk, Inflation, Option theory
PDF Full Text Request
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