The Reconstruction Of Investment Projects Financial Evaluation System

Financial evaluation of investment projects acts as an important part in technicaleconomic feasibility evaluation. In financial evaluation, the traditional indexevaluation method is simple and practical. It can also effectively evaluate investmentprojects. Consequently, it is applied as the primary method of investment projectsunified standards and guidelines in many coutries. There is still a huge research spaceand reality need for the research of investment project financial evaluation methodswhich is based on traditional indicators. Financial evaluation of investment project isoften carried out in two dimensions. The first one is to evaluate the project return,which could be reflected by many indicators. The other one is to evaluate the projectrisk. Recently, no simple and effective standard is able to reflect the project risk.This paper aims to found a two-dimensional project evaluation system by doing arearch on the Reconstruction of Investment Projects Financial Evaluation System. Inthe system, NPV is used as the core indicator to evaluate the project return, while IRRis used as the core indicator to reflect the ability of resisting risk and uncertainty indifferent perspectives of investments. A clear guidance is provided for the investorswhen choosing projects. Investors can make decisions according to their preferences.Finally, this paper focuses on the specific application of the two-dimensionalevaluation system. This system can be applied to three types of common projects,such as mutually exclusive projects.This paper reassesses on the economic meaning of IRR from the perspective ofrisk and uncertainty via the NPV curve of conventional investment project. The neweconomic meaning of IRR provides a new theoretical perspective for its applications,In conventional investment project, the economic meaning of internal rate ofreturn can be expressed as: reliability of bringing a return that investors require in aproject or ability of resisting risk and uncertainty during a project’s life.According to Knight, risk is measurable. It can be transferred if there is enoughinformation. Since risk can be transformed into fixed costs, we can deduct the fixedcost (risk factors) from cash flows adopting similar ratify equivalent method. A newIRR could hence be calculated which shows the project’s ability to resist uncertainty.