Multicriteria cash-flow modeling and project value-multiples for two-stage project valuation.

Resumen

The analysis of project risk, return and value (PRRV) using the NPV model is essential for capital budgeting decision support. The major difficulty arises from the need to model the expected cash-flow stream. On the grounds that different cash-flow components (CFC) may ask for different projection criteria, this paper formulates a general (i.e., free of built-in assumptions) PRRV analysis method that allows to incorporate preferences and expectations in the form of specific projection criteria - formulated in terms of ratios and rates of change - for each CFC. Value-multiples, widely used in the field of firm-valuation, may be easily adapted to project appraisal, thus providing alternative indicators for project ranking and selection. This possibility, together with a two-stage approach - first ignoring and then considering the project specific financial structure - and sensitivity analysis using scenario simulation are also discussed. © 2007.