Discounted Cash Flow Research Articles

Investment Feasibility Analysis Using Discounted Cash Flow Valuation Method (Case Study: Gold Mine in Pit A PT XYZ)

Investment in the mining sector carries a high risk, so a comprehensive financial evaluation is required to ensure project feasibility. This study assesses the financial feasibility of gold mining investment in Pit A, PT XYZ, for the period 2025 to 2036. The purpose of this study is to evaluate the feasibility of the project through the analysis of key financial indicators such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PBP) using the Discounted Cash Flow (DCF) method. The DCF method was chosen due to its ability to project future cash flows and incorporate them into a comprehensive assessment of the potential benefits and risks of the project. In addition, sensitivity analysis was conducted to see the effect of changes in important variables such as revenue, cost of goods sold (COGS), and capital expenditure (capex) on the financial results of the project. The results show that the project is financially viable, with a positive NPV of US$404.16 million, an IRR of 52.10%, and a PBP of 3.32 years, all of which indicate a strong return on investment. Further sensitivity analysis shows that the project remains robust under various scenarios of changes in key variables. This study contributes to the investment evaluation literature in the mining sector by offering a more integrated approach to addressing investment uncertainty and risk through the combined use of the DCF method and sensitivity analysis.

MÉTODOS PARA ANÁLISE DE INVESTIMENTO: APRESENTAÇÃO TEÓRICA E PRÁTICA

This work aims to present the most commonly accepted methods for investment analysis, namely Net Present Value (NPV), Payback – with simple and discounted cash flow, Internal Rate of Return (IRR), and Modified Internal Rate of Return (MIRR). Conceptually, the work presents MIRR as an evolution of IRR, aiming to correct inherent problems with IRR, such as the analysis of cash flows with sequential positive and negative peaks, where the IRR method would generate multiple rates instead of a single rate for the project. This article also introduces the concept of the Average Attractiveness Rate. The study methodology used is bibliographic research, presenting the concept, theory, and application of each method while attempting to differentiate them. In the end, a practical example with values is presented, where a manager, in deciding whether or not to invest, considers the use of investment analysis methods for decision-making regarding the trade-off.

Cost of Illness Studiesin clinical depression Using Discounting Methods: A Comprehensive Analysis

Abstract:This research delves into the intricate domain of Cost of Illness (COI) studies, also known as Burden of Disease (BOD), with a specific focus on depressive disorders. Employing a bottom-up approach, the study meticulously scrutinizes the economic implications of depression at various levels, emphasizing direct and indirect costs. The analysis integrates a detailed exploration of diverse discounting methods, including Net Present Value (NPV) and Discounted Cash Flow (DCF), with a particular emphasis on the Indian context to comprehend unique socio-economic factors.Methodologically, the study systematically reviews scientific literature over the past decade, utilizing databases such as Web of Science and Google Scholar. The inclusion criteria prioritize patient-based studies related to the cost of illness associated with depression. The research adopts a comprehensive approach, considering various methodologies and discounting techniques to enhance the understanding of economic implications.The comparative analysis of the total cost of illness across diverse countries unravels significant variations, highlighting the intricate nature of healthcare expenditures and economic structures. Specific breakdowns for each country consider factors suchas currency exchange rates, inflation, and Purchasing Power Parity (PPP) adjustments, shedding light on the complexities involved.The study across five countries highlights significant variations in depression-related costs. Direct medical costs have a mean of $42,668 (SD=16,940) with a high t-statistic of 27.83 (p-value 0.001), emphasizing substantial differences. Direct non-medicalcosts average $27,171 (SD=13,220) with a t-statistic of 14.07 (p-value 0.001), indicating a notable economic burden beyond medical expenses. Indirect costs related to depression stand at a mean of $63,816 (SD=25,230), with a t-statistic of 35.30 (p-value 0.001), highlighting significant impacts on productivity and societal costs. The total cost of illness, encompassing both direct and indirect costs, averages $113,590 (SD=43,990), with a t-statistic of 49.49 (p-value 0.001), reflecting the extensive economic implications of depression across these diverse nations.In conclusion, this comprehensive analysis contributes depth to our understanding of the economic impact of depressive disorders, providing valuable insights for policymakers, healthcare providers, and researchers. The research underscores the multifacetednature of the economic burden of depression, emphasizing variations across countries and advocating for comprehensive, context-specific approaches in assessing and addressing global implications. Acknowledging challenges with discounting methods, the paper identifies opportunities for refining methodologies and improving economic evaluations in the future, emphasizing the importance of nuanced insights for effective policymaking and healthcare strategies on a global scale.

Optimal Replenishment Strategy for a High-Tech Product Demand with Non-Instantaneous Deterioration under an Advance-Cash-Credit Payment Scheme by a Discounted Cash-Flow Analysis

This study investigated non-instantaneous deteriorating items because not all products deteriorate immediately. In the high-tech product life cycle, the product demand increases linearly substantially in the growth stage and maintains a near-constant level in the maturity stage. This is a ramp-type demand rate. To satisfy the demand as shortages occur, partial backlogging is necessary. The advance-cash-credit payment scheme, comprising advance, cash, and credit payments, has gained popularity in business transactions to improve cash flow flexibility among supply chain participants. This study explored a partial backlogging inventory model with ramp-type demand for non-instantaneous deteriorating items under generalized payment. The proposed model also incorporated discounted cash flow analysis to account for the time value of the profit function. This study attempted to determine the optimal replenishment strategy to maximize the present value of the total profit. Finally, we conducted a sensitivity analysis to examine the efficacy of the proposed model and gain managerial insights. The optimal total profit rises with an increase in the permissible delay period and sale price but decreases with an increase in ordering and purchase costs. Then, the decision-maker can refer to the managerial insights to choose the appropriate parameter value for the operation.

AN AUSTRIAN CRITIQUE AND ALTERNATIVE TO DISCOUNTED CASH FLOW ANALYSIS

Among scholars, Discounted Cash Flow is considered one of the most precise methods to preview the “fair” value of an asset. However, as the Austrian School explains, social phenomena are complex and cannot be modeled. Social facts involve uncountable variables and a radical, permanent uncertainty. So, this work presents a critique of the Discounted Cash Flow Perspective and introduces guidelines for the development of an Austrian entrepreneurial-based alternative. Entrepreneurs are individuals who bear uncertainty, while seeking profits and molding the future, aiming to satisfy consumer needs. It is through entrepreneurship that firms sustain their activities over time, challenging turbulences and creating/exploiting opportunities. Then, more than modeling prices of firms, investors should analyze the quality of the entrepreneurship of the firms they intend to invest in, rewarding and trusting those they see as most profitable in the future.

Формирование оценочных значений, связанных с обесценением внеоборотных активов

The purpose of the study is to analyze the theoretical and practical aspects of the formation of accounting estimates related to the impairment of non-current assets. The author considers the features of impairment test for fixed assets and intangible assets, considering the requirements of federal and international standards. Based on the systematization of discounted cash flow calculation practices, a formula for determining the value in use as one of the possible values of the recoverable amount and a formula for the present value of cash flows, considering improvements in the accounting regulation system, are proposed. The practical significance of the research is the development of specific methodological recommendations for the calculation of individual articles and components of the value in use.

Methodology for improving the assessment of the economic efficiency of transport infrastructure development

Transport infrastructure, especially railway infrastructure, plays a key role in economic development, ensuring efficient movement of goods and people. It is characterised by high capital intensity, long operational lifespans, and generation of socio-economic effects. Therefore, there is a need to improve the methodology for assessing the economic efficiency of creating and developing transport infrastructure objects. The traditional approach to evaluation is based on discounting cash flows. When applying this method, significant capital investments are compared with devalued effects in subsequent years due to discounting, during which the infrastructure object reaches the specified estimated load. Moreover, it does not consider the fact that the transport infrastructure benefits and holds value not only for the current generation but also for the future one. Additionally, it, as an economic good, cannot be seen as a one-timely consumed product: this transportation service cannot be accumulated. For a more accurate and comprehensive assessment of the efficiency, particularly in the case of railway transport, it is proposed to consider the results of long-term operation of the transport infrastructure at full (estimated) load not in the future but in the present (present сontinious). The economic assessment indicators include initially invested and adjusted capital, annual effect, efficiency ratio, and the value of the transport infrastructure object. The research results aim to provide an adequate assessment of project implementation efficiency in the field in question. In the future, the methodology can be enhanced by defining risks of not ensuring normal infrastructure load throughout the entire calculation period as well as by assessing the reduction in profitability or increase in transportation costs.

Optimization of a proposed biomass generator: Harnessing citizen waste with electric vehicle charging infrastructure

Global municipal solid waste production is rising, causing significant environmental, health, and economic issues. Developed countries have advanced recycling technologies, but cities like Dhaka, Bangladesh—among the most densely populated-struggle with inadequate waste management. This feasibility study aims to improve environmental protection and create new energy sources by proposing a waste management system across Dhaka, focusing on waste valorization for bioenergy with optimized efficiency and minimal impact. The study includes design and optimization of a biomass-based power plant to meet the energy needs of EV charging stations and the national grid, evaluating its economic performance through discounted cash flow and payback period analyses. The paper explores the integration of an EV charging station powered by biogas, addressing the growing need for EV infrastructure in Dhaka. By evaluating biomass generators as a greener alternative to fossil fuels, the study analyzes the technical, economic, and environmental feasibility, including CO2 emissions, using HOMER Pro.

Variation in the values of the beta coefficient for systematic risk depending on the approach applied on the example of companies from the WIG20 index

Purpose of the study: The beta coefficient for systematic risk can be obtained with various methods. Each of these methods may be methodologically correct and justified in the scientific literature, but the results obtained may differ. The aim of the article is to indicate differences in the estimated values of the beta coefficient for systematic risk caused by different methods of their calculation or different sources of data acquisition. Methodology: The article presents methods of calculating the beta coefficient for systematic risk and the most popular sources of obtaining this coefficient. Then, the beta ratio was calculated using the historical method for the period of 1, 2, 5 and 10 years for companies from the WIG20 index and beta indicators were obtained from the publications by A. Damodaran. On the basis of the obtained data, maximum divergences in beta coefficient values were determined and their mean value was calculated. Main findings: The results of the work indicate the average difference in beta values for companies from the WIG 20 index at the level of 0.51 and the maximum value of 1.12. Moreover, it was determined that statistically the lowest beta values as of December 31, 2023 for companies from the WIG20 index were provided by the historical method for a period of 2 years, and the highest values were provided by A. Damodaran. Application of the study: The conducted research indicates the range in which stock market analysts and valuation specialists can model the valuation value from the level of the beta coefficient. Market practitioners can choose both the highest and the lowest value and thus influence the value of the discount rate and the value of the company's valuation in the discounted cash flow method. Originality/Novelty of the study: The article presents original results of empirical research on the beta coefficient. This paper presents volatility in the values of the beta coefficient for systematic risk resulting from different methods of estimating it on the example of companies from the WIG20 index.

Company Valuation for 4PACT

4PACT, which was established in 2021, is an innovative startup operating in both the Food & beverage industry and the waste management industry. Its main objective is to address Sustainable Development Goal (SDG) number 12 by offering edible cutlery as a solution to reduce plastic waste and provide a distinctive value proposition to customers. At present, 4PACT has successfully developed and marketed edible straws as its initial product line, targeting primarily sustainable-minded cafes in the B2B market. These straws are manufactured primarily from rice flour and tapioca flour, resulting in fully biodegradable and consumable straws available in a variety of colors and sizes. The company has already established partnerships with several B2B clients, yielding positive net profits. However, 4PACT has encountered a period of stagnant growth. Consequently, this research endeavor aims to analyze the challenges faced by the company, propose viable solutions, and formulate a strategic plan to achieve optimal outcomes. This study will employ a quantitative methodology, leveraging internal company data, and employing the discounted cash flow method.

Analyzing the Influential Factors of Valuation: A Case Study on Taiwan Semiconductor Manufacturing Company

During the Artificial Intelligence (AI) revolution, the semiconductor industry saw unprecedented demand, driven mostly by the need for more powerful computational technology. This study examines the value impact of AI breakthroughs on Taiwan Semiconductor Manufacturing Company (TSMC) using a rigorous Discounted Cash Flow (DCF) analysis. With AI technologies largely driving demand in the semiconductor business, this study adapts classic financial modeling approaches to capture the subtle implications of technical advancements on firm valuation. Using substantial financial data from TSMC, the research modifies growth rates to reflect AI-driven market potential, while also incorporating cautious forecasts to allow for industry volatility. The findings indicate that the market may undervalue TSMC, implying an upbeat forecast for the firm in the middle of the AI boom. The research contributes to financial academic knowledge by illustrating the use of DCF to evaluate technology influences on business values, providing important insights for investors and corporate strategists. Future refinements to the DCF model are proposed, with an emphasis on incorporating dynamic market data and policy effect research to improve investment assessments in technology.

Investment Valuation of Long-Term Coal Mining Project at Pit J Using Discounted Cash Flow Method

Investment Valuation of Long-Term Coal Mining Project at Pit J Using Discounted Cash Flow Method

Using Real Options and Geometric Brownian Motion Methods to Evaluate Petroleum Projects in Indonesia

There are several methods for evaluating the value of a project. The most commonly used method is the Discounted Cash Flows (DCF) method which is more practical in its use. However, the DCF method still has several weaknesses, including not paying attention to the flexibility of the manager's decision-making when the project is carried out. The Real Options method enhances this by offering more flexible and varied models. This study uses Benninga's version of the binomial method to evaluate the value of petroleum projects with the characteristics of existing companies in Indonesia. In this study, oil prices are assumed to move following the Geometric Brownian Motion (GBM) model which is commonly used in modeling the movement of a fluctuating price. In addition, the author also modifies the binomial model by including expansion options, divestment options and a combination of both. The results of this study show that the more options that managers can choose in decision-making, the greater the opportunity for the company to optimize profits and minimize losses.

The effect of stope size and cut-off grade on the design and scheduling of an underground mining operation in the presence of a pre-concentration system

ABSTRACT Stope layout optimisation is considered one of the main steps in the design and strategic planning of underground mining operations. This paper investigates the influence of stope size and cut-off grade in an underground sublevel stoping operation in the presence of a preconcentration system using a newly developed mathematical optimisation model. The utilisation of a bulk ore sorting system, its effects on the resource utilisation, and the final discounted cash flow of a case study are presented. Results show that incorporating a bulk sorting system to a sublevel stoping operation can significantly increase the viability of a deposit.

The Impact of Geopolitical Conflict and Fed Rate Hikes on Asset Pricing

In the current context of weak economic recovery, ongoing Russia-Ukraine conflict, and consecutive interest rate hikes by the Federal Reserve, global financial and commodity markets have experienced intensified turbulence. To investigate the impact of the Russia-Ukraine conflict and the Federal Reserve interest rate hikes on asset pricing, this study first analyzed the U.S. stock market, bond market, and commodity market based on data from the CEIC database. From the comprehensive stock and year-on-year data after each round of interest rate hikes, it is evident that both the Russia-Ukraine conflict and the Federal Reserve interest rate hikes have had a significant negative impact on investors' financial assets. Additionally, due to the continuous interest rate hikes by the Federal Reserve, funds from the stock market have gradually shifted to the bond market. Furthermore, after analyzing the impact of the Russia-Ukraine conflict and the Federal Reserve interest rate hikes on the U.S. stock market, bond market, and commodity market, the study further explored the influence of these factors on asset pricing using the discounted cash flow (DCF) valuation model. Finally, the study provided an outlook on future market trends.

Navigating Reversed Valuation Dilemmas: SME Enterprises Nationalized in 1950s Poland - A Case Study

The publication describes a problem that often arises in court cases regarding the valuation of SME forcibly nationalized in the 1950s. Valuation of compensation to previous SME owners is an ongoing court debate in Poland. The authors proposed an approach that took into account the economic conditions at that time and complied with the principle of paying compensation for the actual losses incurred, and not for the potential losses that could be incurred as a result. At the same time, the publication analysed other similar judgments in cases regarding compensation for nationalized enterprises. The practical and scientific value of the publication lies in the fact that it addresses an existing practical problem and its solution. Research Design & Methods: the paper presents a conceptual proposal of the SME valuation method in unique circumstances, complemented by a detailed case study illustrating the application of this valuation approach. Findings: When calculating the compensation for nationalization or other forms of expropriation courts use various methods of valuing net assets (fair market value, book value, recreation value) plus separately determine the value of intangibles, such as licenses, based on the discounted average profits from such assets for a reasonable period of time. If indexation was employed (for historical cost valuation), it used either average interest rates in the economy, the cost of capital of a company, or the cost of lost opportunities for a particular company. Using discounted cash flow valuation for the entire business was uncommon and even if it was included in the bilateral investment treaties (which were meant to protect investors from expropriation) it was considered by the tribunals as speculative and unreliable. Our approach proposes net asset value approach with the use of inflation or average salaries for indexation (to calculate current values of assets) and a combined approach of historical values if they were known at the moment of nationalization and modern estimates of values of remaining assets (that belonged to the company but their value was not provided in the original documentation). Implications & Recommendations: The analysis of historical compensation decisions and bilateral investment treaties suggests that the most popular approach to valuing a loss from expropriation is the fair market value approach and net assets approach with a separate valuation of significant intangible assets provided that they gave certainty of profits for the investor. Contribution & Value Added: The practical and scientific value of the publication lies in the fact that it presents an existing practical problem of court calculation of compensations to owners of forcibly nationalized SMEs in Poland and its solution together with methodological framework that can be used in the future

Levelized Cost and Carbon Intensity of Solar Hydrogen Production from Water Electrolysis Using a Scalable and Intrinsically Safe Photocatalytic Z-Scheme Raceway System

The realization of an environmentally sustainable and widely-adopted hydrogen economy may require lowering hydrogen production costs of production pathways with ultra-low greenhouse gas emissions to $1/kg H2. The allocation of new or existing renewable electricity generation solely to hydrogen production remains contentious due to disputes regarding emissions accounting. Photoelectrochemical (PEC) hydrogen production technologies offer a unique solution, as hydrogen is produced directly from solar energy and water, without the need for electricity generation. However, cost projections for past photoelectrochemical designs have suggested that they are not cost competitive compared to conventional electrolysis systems manufactured at scale. Herein, we offer the first illustrative benchmark of cost and carbon intensity of hydrogen produced in a Type 2 Z-scheme photocatalytic reactor design that employs suspended semiconducting nanoparticles organized in two stacked baggies in a raceway design.To explore the near-term and future cost projection for hydrogen production via Type 2 photocatalytic Z-scheme raceways, the authors developed a bottom-up total installed capital cost model. This project cost model incorporates: 1) raceway reactor cost, derived from a Design for Manufacturing and Assembly (DFMA) process-based cost model, 2) mechanical balance of plant, including process equipment, piping, valves, and instrumentation, derived from equipment quotes, scaling, database values, and Aspen estimates; 3) electrical balance of plant, including wiring, derived from time and material cost correlations; 4) Site Preparation, focused on green field installation; and 5) Construction Overhead, including engineering, procurement, and construction (EPC) costs and project contingency. The capital cost model is fed into a Levelized Cost of Hydrogen (LCOH) discounted cash flow model that accounts for electricity and water consumption, in addition to other operating costs, including labor, maintenance, and raceway replacements.A hybrid life-cycle approach was used to develop an inventory of greenhouse gas emissions from all materials and energy flows associated with the facility life cycle. These flows are converted to emissions based on specific emission factors, or by using physical units-based input–output LCA models associated with the broader economic impacts of fuel and materials production, use, and end use.Estimates for levelized cost of hydrogen suggest that a 50 metric ton H2 per day (MTD) raceway plant can approach $2.50/kg H2 at an 8% solar-to-hydrogen efficiency with further cost improvements possible through increased performance and larger plant scales. Carbon intensity is estimated to be well under clean hydrogen targets for global warming potential of <2-4 kg CO2e/kg H2 produced. The results suggest a highly competitive and scalable technology, that justifies further experimental validation and prototyping in the field. Figure 1

Stock Valuation of PT. Panca Budi Idaman, Tbk. (PBID) based on Free Cash Flow to the Firm and on Relative Valuation

The stock valuation of PT Panca Budi Idaman, Tbk. (PBID), an Indonesian plastic packaging manufacturer, is evaluated using the absolute and relative valuation. The absolute valuation is based on Discounted Cash Flow (DCF) method. In relative valuation, PBID is compared to its peers, which in this study are IPOL, PDPP, and TRST. Indonesia’s significant economic growth and the vital role of the plastic industry are noting strong demand for plastic packaging despite environmental challenges and regulatory pressures. Financial performance from 2017 to 2023 is assessed through profitability, liquidity, and solvency ratios, demonstrating PBID’s efficient operations and robust financial health. Future cash flows are projected, discounted using PBID’s Weighted Average Cost of Capital (WACC), and the terminal value is calculated. The intrinsic value is estimated at IDR 3,987 per share, indicating undervaluation compared to the current price of IDR 1,325 per share. Relative valuation compares PBID to industry peers using EV/EBITDA, P/E, and P/B ratios, reinforcing the undervaluation finding. Investment recommendations suggest PBID’s stock as a buying opportunity due to its strong market position and favourable valuation metrics.

Comparing Company Valuation Before and After IPO Study Case PT Pertamina Geothermal Energy Tbk

Affordable energy resources of energy play a crucial role in economic and social development to support food production, availability of water supply and sustainable healty lifestyle. In order to avoid long-term scarcity resulting from the continuous use of non-renewable energy sources, we must explore all potential renewable energy source that align with concernes about climate change and other environmental issues. As a continuation of the Indonesian government’s efforts to generate clean and environmental friendly energy, PT Pertamina Geothermal Energy (PGE) was established in 2006. It has contributed 82% of the installed geothermal energy capacity in Indonesia. By leveraging Indonesia’s location within the Ring of Fire as one of the world’s geothermal energy hubs, PGE has been supplying electricity to more than 2 million households in Indonesia with a potential emission reduction of 9.7 million tons of CO2 per year. To achieve sustainable business growth, PGEO is optimizing production in its operational areas by expanding installed capacity. In the company consideration, IPO is an appropriate step to financing the expansion. The author compares the company’s value before and after the IPO to determine the short-term impact of the IPO, helping investors gauge their confidence in making investment decisions in PGEO. This study utilizes secondary data from prospectuses, financial statements, annual reports, sustainability reports, company-published documents, as well as data from IDX.co.id and IDN Financials.com. The data was collected and analyzed to understand evaluate financial performance, and assess the company’s value before and after the IPO. The calculation of the company’s intrinsic value is conducted using the Discounted Cash Flow Valuation method for the pre-IPO period against the company’s financial projections for the years 2019 to 2022 and for the post-IPO period against the company’s financial projections for the years 2024 to 2028, using discount rates of 8.25% and 8.65% for each. In resulting the intrinsic value pre-IPO is IDR 1.141,28 and the intrinsic value post-IPO is IDR 1.300,86. The stock price of PGEO at its IPO on February 23, 2023, was IDR 875, while the adjusted closing price on December 29, 2023, was IDR 1,170. This study founds that the market price of PGEO’s stock, both before and after the IPO, are overvalued.

The Effect of Sustainable Alternative Cigarette to the Valuation of PT. Hanjaya Mandala Sampoerna, Tbk. (HMSP.JK)

This research investigates the impact of sustainable alternative cigarettes on the valuation of PT Hanjaya Mandala Sampoerna Tbk (HMSP.JK), a leading tobacco company in Indonesia and a subsidiary of Philip Morris International (PMI), which is actively pursuing a smoke-free future. With growing global awareness of the health risks associated with traditional cigarettes, there has been a shift towards alternative tobacco products perceived as less harmful. This study evaluates how the introduction and adoption of these alternative products influence the company's market valuation. Using a comprehensive valuation model that integrates financial analysis, industry trends, and potential growth of the alternative cigarette market, the research applies discounted cash flow (DCF) analysis to the projected 10Y HMSP’s FCFF. The evaluation was conducted under three scenarios based on the rate of acceptance of Heated Tobacco Sales (HTU) in the market both domestic and international. In the scenario analysis, the projected stock price varies significantly depending on the rate of HTU sales. Under the most optimistic scenario (Scenario 3/10% HTU revenue mix), the stock price shows substantial upside potential up to 92% with intrinsic value of Rp. 1,297. The market price of HMSP’s share is at Rp. 675 as of August 1, 2024, which indicated that current share price is undervalued. Therefore, it is recommended for investor to buy HMSP stock at current price. Based on these insights, the Author recommends that Sampoerna’s management focus on accelerating the adoption of alternative products, navigating regulatory challenges proactively, and enhancing consumer education to solidify its market position in this evolving landscape.