Probabilistic project evaluation: Here`s the better mouse trap but where`s the crowd?
- West Virginia Univ., Morgantown, WV (United States)
Projects requiring capital investments under conditions of uncertain prices, costs, and quantities, are currently evaluated using conventional discounted cash flow scenarios or risk adjusted discount rates. However, the discounted cash flow methodology is theoretically flawed when uncertainty is present, and may give seriously misleading results to decision makers. Scenario analysis, which is often used to evaluate risk can also be flawed. This paper describes the weaknesses of conventional discounted cash flow and scenario analysis and shows that probabilistic analysis gives more reliable results as well as more information for the decision maker. The paper also explores why probabilistic analysis, which has been recognized as a superior evaluation tool for many years, is not used more extensively by the mining industry.
- OSTI ID:
- 525963
- Report Number(s):
- CONF-960664-; TRN: 97:003476-0004
- Resource Relation:
- Conference: 5. conference on the use of computers in the coal industry, Morgantown, WV (United States), 9-12 Jun 1996; Other Information: PBD: 1996; Related Information: Is Part Of Proceedings of the 5th conference on the use of computers in the coal industry; Thompson, S.D.; Grayson, R.L.; Wang, Y.J. [eds.]; PB: 234 p.
- Country of Publication:
- United States
- Language:
- English
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