The cost of capital and its impact on the methods of discounted cash flow

Authors

  • José R. Medina Cátedra de Proyecto Industrial e Ingeniería Económica, Facultad de Ingeniería Química (Universidad Nacional del Litoral)
  • Gustavo A. Pérez Cátedra de Proyecto Industrial e Ingeniería Económica, Facultad de Ingeniería Química (Universidad Nacional del Litoral),

DOI:

https://doi.org/10.5377/nexo.v25i1.793

Keywords:

DCF, cost of capital, mutually exclusive alternatives, project profitability

Abstract

A techno-economic feasibility study in any branch of engineering or any kind of business involves knowing a measure of the investment profitability. Currently, no one discuss that for a solid basis decision making it should be used discounted cash flow (DCF), despite the persistence of a widespread forms (i.e. payback period, benefit / cost). The objective of this paper is to analyze, critically, the relevance of the methods used to make comparisons between mutually exclusive projects as well as suggest alternative ways of analysis that consider the impact of different rates of capital cost and constrain the decision in an appropriate way. The proposal presented here allows exclusive alternatives ordering with an approach that include a more complete view on the problem. The most interesting result is related to the sensitivity of the methods on the inherent decision variables involved in them.

DOI: http://dx.doi.org/10.5377/nexo.v25i1.793

Nexo Revista Científica,Vol. 25, No. 01, pp.18-21/Junio 2012

 

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Author Biographies

José R. Medina, Cátedra de Proyecto Industrial e Ingeniería Económica, Facultad de Ingeniería Química (Universidad Nacional del Litoral)

es Ingeniero Químico y Magister en Ciencia y Tecnología de Alimentos, recibido en la Universidad Nacional de Litoral (Argentina). Participa como Profesor de asignaturas de Ingeniería Económica y Proyecto Industrial, y con tareas de investigación sobre Tecnologías de procesamiento y conservación de matrices cárnicas.

Gustavo A. Pérez, Cátedra de Proyecto Industrial e Ingeniería Económica, Facultad de Ingeniería Química (Universidad Nacional del Litoral),

es Ingeniero Químico, recibido en la Universidad Nacional del Litoral (Argentina). Desarrolla sus actividades como Profesor Responsable de las asignaturas Ingeniería Económica y Proyecto Industrial en la Facultad de Ingeniería Química. Además realiza tareas de investigación en el CONICET, en el área de “Ingeniería de Procesos”
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Published

2012-09-03

How to Cite

Medina, J. R., & Pérez, G. A. (2012). The cost of capital and its impact on the methods of discounted cash flow. Nexo Scientific Journal, 25(1), 18–21. https://doi.org/10.5377/nexo.v25i1.793

Issue

Vol. 25 No. 1 (2012)

Section

Articles

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