The phased approach to time value of money in economic analysis of investment projects

Daskovskiy, Vadim and Kiselyov, Vladimir (2010): The phased approach to time value of money in economic analysis of investment projects.

Abstract

Method discounting cash flow (DCF) is analyzed in the article. Article is demonstrating complete economic insolvency DCF. The fallacy of discounting method causes serious distortion of the results. It’s wide usage entails negative consequences not only for the concrete investor, but also for the economy on the whole. The new method of the phased approach to time value of money in economic analysis of investment is represented in our article. The recommended phased method of allowing for the time factor is distinguished by: • reducing investment projects’ (IP) cash flow to two evaluation aspects: investments by investment stage completion and cash flow by maintenance completion; • allowing for investment stage fund freezing; • exchange of discount factors for the financial market’s capital accrual rate. To test operability of allowing for the time factor in modeling IP economic flows, banks’ feasibility study of credit repayment was used.

• Item Type: MPRA Paper
• Language: English
• Keywords: investment efficiency; investment project; profit; the discount rate; projection period; investment phase; operation phase; net present value (NPV); discounting cash flow (DCF)
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O22 - Project Analysis; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics

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