Journal of Applied Economic Research
ISSN 2712-7435
A Sensitivity Analysis of Indicators of Efficiency of Investment Projects Based on Dynamic Methods
Biryukov A.N.
Abstract
The article investigates the problem of managerial decision-making concerning actual investments in an enterprise. The development of manufacturing enterprises in time is impossible without the development and improvement of their industrial structure reconstruction, i.e.. technical overhaul, increasing production capacity and new production facilities. This is necessary for remaining competitive in the market, as well as for maintaining and increasing their income, thereby increasing the stability of the financial condition of the company. Such production changes occur in the enterprise in the course of the implementation of investment projects. Each project is subjected to careful analysis: projected and analyzed capital expenditures, projected sales, profit and payback period of the investment. Investors, enterprises, credit institutions around the world use methods of assessment based on discounting the cash flows, namely dynamic methods. Recently, there has been a lot of questions regarding the methodology of discount cash flows when assessing the effectiveness of investment projects. The majority of authors point to such a flaw of the dynamic estimation methods as the lack of definitive choice of the discount rate as a critical parameter, and it being subjective rather than objective. There emerged the need for methodological justification of the discount rate as a key factor underlying the efficiency analysis of investment projects. The discount rate plays a key role in the management of investment activity of the enterprise. It served as the basis of the comparative content analysis of investment activity in investment planning of the project. The results of the empirical part of the study confirm that the choice of the discount rate for dynamic evaluation methods is one of the most critical steps in the substantiation of the investment project and making managerial decisions regarding it. The main provisions and conclusions of the article may be of interest to economic divisions of companies when designing innovative projects and programs for the development and improvement of their production structure, as well as to the scientific and business community
Keywords
investment project; dynamic methods of assessment; the discount rate; projects; net present value (NPV); internal rate of return (IRR); profitability index (PI); the discounted payback period (DPP).
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About Authors
Biryukov Aleksandr Nikolaevich – Doctor of Economics, Associate Professor, Professor of the Department of Economic Theory and Analysis, Sterlitamak Branch of Bashkir State University, Sterlitamak, Russia (453103, Republic of Bashkortostan, Sterlitamak, Lenin Avenue, 49); e-mail: biryukov_str@mail.ru
For citation
Biryukov A.N. A Sensitivity Analysis of Indicators of Efficiency of Investment Projects Based on Dynamic Methods. Bulletin of Ural Federal University. Series Economics and Management, 2017, Vol. 16, No. 6, 954-968. DOI: 10.15826/vestnik.2017.16.6.045
Article info
Received August 2, 2017; Accepted October 5, 2017.
DOI: http://dx.doi.org/10.15826/vestnik.2017.16.6.04
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