Business valuation of location-specific infrastructure projects in data-poor regions

Abstract

A methodology in determining the financial values (business values) of physical infrastructure projects is presented from the public point of view. The business valuation model in this thesis adopts three concepts of financial modeling, Monte Carlo simulation (probability-generated cash flow), Capital Asset Pricing Model, and Adjusted Present Value. Using this model, the business values of a hypothetical infrastructure project are simulated 1,000 times and the mean business value is analyzed in terms of patterns and magnitudes of the simulation. The results from the 1,000 simulations showed large differences between the value derived by this model and those by the traditional net present value method. Also, this model elucidated qualitative information on how levels of government’s financial support such as subsidies, tax incentives and revenue guarantees will affect the project’s business value by components. The model elucidated, as well, the qualitative information on how project’s contractual framework may affect the business value when private contractors bear key uncertain risks, such as demand changes and construction cost overruns.