The Issue of Investment Decision-Making of Leveraged Projects
Investment decision-making is based on many criteria and analysis. Currently, the projects imposed many requirements that are often in mutual contradiction or project is very risky. One example for increasing risk of the project is a financing by debt. The paper is focused on the issue of leveraged projects, because their valuation is different from the valuation of projects financed merely by equity, and an existence of some financial effects of leverage affects financial decision-making. Hence, a general method of quantification of net present value and adjusted net present value is described. Next, it is focused on sensitivity analysis as a one of the steps of risk analysis. The aim of the paper is to analyse the net present value of the certain leveraged project, make a sensitivity analysis of the project and identify significant factors that affect the project value. Finally, there are mentioned some weaknesses of sensitivity analysis and other methods used for risk analysis.
Nowadays companies all over the world face the consequences caused by the financial crisis. Almost every one of them must be financed by debt, and one of the goals of the company is often to decrease risk (Corejova et al. 2014). Also it is difficult for any company to choose the variant of the offered investment opportunities that it will bring the most benefit, whether it is a short-term or long-term investment decision (Dengov and Gregova 2010). A second former is characterized by a high involvement of decision-makers on the outcome of the decision. Therefore, the decision should include attitudes, opinions and judgments of the decision-maker, but it should be an outcome of an objective assessment of the decision situation (Grublova 2010).
KeywordsAdjusted net present value Sensitivity analysis Leverage Tax shield
The paper is an output of the science project VEGA 1/0428/17 Creation of New Paradigms of Financial Management at the Threshold of the 21st Century in Conditions of the Slovak Republic.
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