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dc.contributor.authorEmhjellen, Kjetil
dc.contributor.authorEmhjellen, Magne
dc.contributor.authorOsmundsen, Petter
dc.date.accessioned2006-07-05T08:50:39Z
dc.date.available2006-07-05T08:50:39Z
dc.date.issued2001-08
dc.identifier.isbn82-491-0151-00 (trykt versjon)
dc.identifier.issn0803-4036
dc.identifier.urihttp://hdl.handle.net/11250/164627
dc.description.abstractWhen evaluating new investment projects, oil companies traditionally use the discounted cashflow method. This method requires expected cashflows in the numerator and a risk adjusted required rate of return in the denominator in order to calculate net present value. The capital expenditure (CAPEX) of a project is one of the major cashflows used to calculate net present value. Usually the CAPEX is given by a single cost figure, with some indication of its probability distribution. In the oil industry and many other industries, it is a common practice to report a CAPEX that is the estimated 50/50 (median) CAPEX instead of the estimated expected (expected value) CAPEX. In this article we demonstrate how the practice of using a 50/50 (median) CAPEX, when the cost distributions are asymmetric, causes project valuation errors and therefore may lead to wrong investment decisions with acceptance of projects that have negative net present values.en
dc.format.extent82760 bytes
dc.format.mimetypeapplication/pdf
dc.language.isoengen
dc.publisherSNFen
dc.relation.ispartofseriesReporten
dc.relation.ispartofseries2001:30en
dc.subjectinvestment decisionen
dc.subjectexpected valueen
dc.subjectconstruction cost estimationen
dc.subjectcapital expendituresen
dc.subjectprobability distribution of CAPEXen
dc.titleCost estimates and investment decisionsen
dc.typeResearch reporten


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