Question: Apply at least two appraisal methods to the analysis of a real-life project.
Background
In this module, you have learned three appraisal tools, including the NPV approach, the Monte Carlo Simulation, and real options analysis. In this term project, you are required to apply at least two of them to the analysis of a real-life project. (NPV is compulsory, another recommended is Monte Carlo)
Requirements
- Choose and apply at least two of the three appraisal tools in your If you decide to apply all of them, you might get up to 10% bonus marks if the analysis is soundly conducted.
- Review the literature associated with the application of two or three appraisal tools employed in your analysis (preferably, 3-5 academic journal papers for each approach).
- Justify the choice for your (i.e., whether you have chosen the right appraisal techniques for the project of your interest.). The project can be ongoing or finished. It can be in any country. It can be of any type. However, an energy project would be interesting to investigate. (real data of a project with references)
- Clearly explain the assumptions you make in the estimation of project cash 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. It can be justified through an analysis of market competition conditions by using, say, Michael Porter’s five forces model or SWOP.
- Clearly explain how you choose the project discount rate in the analysis of project NPV and
- Clearly explain the other assumptions you make in the application of ROA or/and the Monte Carlo simulation
- Compare the results obtained from different If there is any disparity between them, explain the reason and assess which result is more reliable.
- (Bonus mark) I will be impressed if you can conduct interviews to elicit experts’ view on the assumptions you make in the analysis and on the plausibility of your appraisal You are also encouraged to compare your results with those from your peers. But remember you still need to demonstrate why it is beneficial
to make comparisons with others’ results. In other words, you need to explain why there are extra insights to be gained.
Word length
3000 words
Useful information sources/references
- Your literature review is expected to cover important papers published by the leading journals in the field of project/construction management:
ASCE Journal of Construction Engineering and Management International Journal of Project Management
Construction Management and Economics ASCE Journal of Management in Engineering Building Research and Information
Firstly, you need give an introduction with purpose of paper. And then apply some literature with the methods. And then justify the choice of project with background information, it should be real example with real data (government or public project is good example because the documents or data are usually provided), that means you need choose a real project with real data again！Clearly explain the assumptions you make in the estimation of project cash flows (growth rate), and it can be justified through an analysis of market competition conditions by using, say, Michael Porter’s five forces model or SWOP (just as simple explanations, it is not supposed to write too many words in this part and put focus on methods.). You need do NPV calculation and Monte Carlo Simulation through graph and table in detail (by excels)!!
For NPV, you need provide calculation graph and explain it, example as follow. E.g you need give real NPV of a project chosen at a certain year and give assumptions of the estimation of project cash flows based on the explanation of SWOP or Michael Porter’ five forces and explain it.
For discount rate, you can get it through analysis and calculation of:
CAPM-Cost of equity
WACC-cost of equity and cost of debt
For Monte Carlo, you need give Distribution graph. Assumptions should also be provided. And explain it.
(e.g. revenue can be gained based on the number of customers and average spend of customers, that might be different in different project; Cost
Tutor’s marking criteria评分标准
Specific Criteria:
Introduction: is the purpose of the paper clearly stated?
Have prior studies on the application of the chosen methods well reviewed? （good literature review）
What methods are chosen in the analysis?
Is the background information of the project provided? (real data!!!)
NPV: (1) Have the assumptions made in the analysis well stated?
(2) Has the choice of discount rate well explained?
(3) Has the estimation of cash flows been well explained?
(4) Has the NPV calculation been well executed?
Monte Carlo Analysis:
- Has the choice of key risk sources been well explained? (standard devintion)
- Has the estimation of key parameters of risk variables been well explained?
- Has the procedure of implementation well explained? (the choice of distribution)
- Has the simulation result been well shown?
- Has the result from the Monte Carlo approach been compared with that from the NPV approach?
Real options analysis (ROA):
- Have real options been plausibly and clearly identified?
- Has the choice of key risk resources been well explained?
- Has the estimation of key parameters of risk variables been well explained?
- Has the binomial tree been well drawn?
- Has the result from ROA been compared with that from the NPV approach?
Have conclusions given a summary of key findings?
