Conventional And Discounted Cash Flow Appraisal Techniques In Infrastructure Investment Decision

Balogun Olayemi Oluwayemisi, Araloyin Funmilayo Moyinola

Abstract


The decision to invest in infrastructure is one that demands a well thought out plan on how to ensure the success of such an investment decision, owing to the capital intensive nature of such investment. A number of appraisal techniques (for instance the conventional and the discounted cash flow appraisal techniques) have been identified to aid investment decision. This paper seeks to identify to which extent the conventional and the discounted cash flow appraisal techniques gives accurate appraisal of infrastructure investment decision by discussing the characteristics and risks associated with infrastructure assets in relation to the strength and weakness of each investment appraisal techniques. The study found out that no one of the appraisal techniques (i.e. the conventional and the discounted cash flow) is efficient enough to fully appraise infrastructure investment. As such, a combination of both the conventional and the discounted cash flow methods of investment appraisal are adjudged to be suitable in the appraisal of infrastructure investments. More specifically, a discounted pay back appraisal method will satisfy the objective of using the conventional and the DCF techniques.


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