Clearly explain how you choose the project discount rate in the analysis of project NPV and IRR. Compare the results obtained from different approaches.
Apply at least two appraisal methods to the analysis of a real – life project
In this module, you will learn the appraisal tools, including the NPV approach, Monte Carlo Simulation approach and Real Option. In this term project, you are required to apply two of the three methods to a real-life project.
Choose and apply at least two of the three appraisal tools in your analysis. If you decide to apply all of them, you might get up to 5% bonus marks if the analysis is soundly conducted.
2. Review the literature associated with the two appraisal tools (preferably, 3- 5 academic journal papers for each approach).
3. Justify the choice of your project. (i.e., whether you have chosen the right appraisal techniques for the project of your interest.). It can be ongoing or finished. It can be in any country. It can be of any type. However, an energy project would be more interesting to look at.
4. Clearly explain the assumptions you make in the estimation of project cash flows. For example, if you estimate revenue on the basis of a constant growth rate, you have to explain why the rate is not expected to change over time.
5. Clearly explain how you choose the project discount rate in the analysis of project NPV and IRR.
6. Compare the results obtained from different approaches. If there is any disparity between them, explain the reason and assess which result is more reliable. For example, you can compare the the range of NPV from Monte Carlo Simulation with the results from NPV.