Net Present Value
Critics to DCF methods
Ducht an UK companies
* However, it is found inappropriate to use DCF methods for investments that have got strategic implications. * There are various reasons for the use of open approach. Since the outcomes of these projects are highly unforeseen, according one interviewee, the application of quantitative tools is not plausible. Therefore, companies tend to apply the rule of thumb methods rather than standardized quantitative models. The justification for not applying quantitative models is some times attributed to the nature of a project.
Capital inv appraisal of new technologies: Problems, misconceptions and research directions
* Specifically, it has been alleged that the traditional appraisal methods of payback, discounted net present value (NPV) and internal rate of return (IRR) undervalues the long-term benefits; that traditional financial appraisals assume a far too static view of future industrial activity, under-rating the effects and pace of technological change; that there are many benefits from investments in new technology which are difficult to quantify and are often ignored in the appraisal process; and lastly, it is claimed that the systems of management control often employed by large organizations compound the bias against those investments which, although expensive, reap rewards vital for long-term viability. The first issue is a criticism of financial technique; the next two are criticisms of the way in which business operations are modelled; and the last is an issue of organizationalc ontrol and behavior. * We show that the criticisms directeda traditional appraisal methods may to some extent be based on misconceptions of the financial models and the ways in which they are best used * A similar objection is raised to the use of NPV and IRR. The claim is that discounting future cash benefits under-emphasizes the future benefits of new technology. This problem may be exacerbated by the
Ducht an UK companies
* However, it is found inappropriate to use DCF methods for investments that have got strategic implications. * There are various reasons for the use of open approach. Since the outcomes of these projects are highly unforeseen, according one interviewee, the application of quantitative tools is not plausible. Therefore, companies tend to apply the rule of thumb methods rather than standardized quantitative models. The justification for not applying quantitative models is some times attributed to the nature of a project.
Capital inv appraisal of new technologies: Problems, misconceptions and research directions
* Specifically, it has been alleged that the traditional appraisal methods of payback, discounted net present value (NPV) and internal rate of return (IRR) undervalues the long-term benefits; that traditional financial appraisals assume a far too static view of future industrial activity, under-rating the effects and pace of technological change; that there are many benefits from investments in new technology which are difficult to quantify and are often ignored in the appraisal process; and lastly, it is claimed that the systems of management control often employed by large organizations compound the bias against those investments which, although expensive, reap rewards vital for long-term viability. The first issue is a criticism of financial technique; the next two are criticisms of the way in which business operations are modelled; and the last is an issue of organizationalc ontrol and behavior. * We show that the criticisms directeda traditional appraisal methods may to some extent be based on misconceptions of the financial models and the ways in which they are best used * A similar objection is raised to the use of NPV and IRR. The claim is that discounting future cash benefits under-emphasizes the future benefits of new technology. This problem may be exacerbated by the