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Economic Valuation of Investments in Tangible Fixed Assets of BASF Asia Pacific: Methodology Review

  • The objective of this thesis is to review and evaluate the valuation methodology for investments into fixed tangible assets methodology applied at BASF East Asia Regional Headquarters for the Asia-Pacific region to develop recommendations based on current research. The net present value, adjusted net present value and economic value added approaches are analyzed as well as other key performance indicators, real option analysis and methods of integrating volatility into the valuation criteria. A shift from the currently utilized basic net present value model is suggested as the static nature of the model can oversimplify or exclude many factors relevant to accurate investment valuations. Ultimately, the net present value should be split up to highlight areas of value creation, real options should be integrated into standard methodology and project cash flow volatility should be considered in the process. The latter can be integrated by use of Monte Carlo simulations, which can be re-run at relevant decision tree nods to show volatility differences throughout the projects timeline. These values can then, either via twin-security, market correlation or internally determined scales be integrated into the discount rate, thus effectively adjusting for project specific risk.

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Author:William Herpichböhm
Advisor:Markus Hoch
Document Type:Bachelor Thesis
Year of Completion:2015
Year of first Publication:2015
Release Date:2015/11/26
Tag:DCF; Economic Valuation; Investments
Degree Program:IBM - International Business Management
Functional area:Finance & Accounting