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Economics of property acquisitions (view source)
Revision as of 14:37, 17 March 2014
, 14:37, 17 March 2014→Bid strategy
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| rowspan = 8 | Assumptions
| rowspan = 8 | Assumptions || Corporate discount rate = 10%
| Corporate discount rate = 10%
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| Minimum commercial PV @ 10% = [[cost::1,000,000 USD]]
| Minimum commercial PV @ 10% = [[cost::1,000,000 USD]]
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| Chance of success (achieve minimum commercial PV or more) = 80%
| Chance of success (achieve minimum commercial PV or more) = 80%
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| Mean present value of all success scenarios @ 10% = [[cost::2,000,000 USD]]
| Mean present value of all success scenarios @ 10% = [[cost::2,000,000 USD]]
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| Chance of failure (achieve less than minimum commercial PV) = 20%
| Chance of failure (achieve less than minimum commercial PV) = 20%
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| Mean present value of all failure scenarios @ 10% = –[[cost::400,000 USD]]
| Mean present value of all failure scenarios @ 10% = –[[cost::400,000 USD]]
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| Mean present value of all success scenarios @ 18% = [[cost::1,000,000 USD]]
| Mean present value of all success scenarios @ 18% = [[cost::1,000,000 USD]]
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| Mean present value of all success scenarios @ 20% = [[cost::800,000 USD]]
| Mean present value of all success scenarios @ 20% = [[cost::800,000 USD]]
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| Expected present value calculation
| Expected present value calculation || 0.8([[cost::2,000,000 USD]]) + 0.2(–[[cost::400,000 USD]]) = ''' +[[cost::1,520,000 USD]] ''' = ''' EPV<sub>10%</sub> '''
| 0.8([[cost::2,000,000 USD]]) + 0.2(–[[cost::400,000 USD]]) = ''' +[[cost::1,520,000 USD]] ''' = ''' EPV<sub>10%</sub> '''
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| Bid strategy method
| Bid strategy method || [[cost::1,520,000 USD]] × 0.5 = ''' [[cost::760,000 USD]] = Recommended bid '''
| [[cost::1,520,000 USD]] × 0.5 = ''' [[cost::760,000 USD]] = Recommended bid '''
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| Recalculation of expected present value (including recommended bid)
| Recalculation of expected present value (including recommended bid) || 0.8([[cost::2,000,000 USD]] – [[cost::760,000 USD]]) + 0.2(–[[cost::400,000 USD]] – [[cost::760,000 USD]]) = ''' [[cost::760,000 USD]] ''' = ''' EPV<sub>10%</sub> '''
| 0.8([[cost::2,000,000 USD]] – [[cost::760,000 USD]]) + 0.2(–[[cost::400,000 USD]] – [[cost::760,000 USD]]) = ''' [[cost::760,000 USD]] ''' = ''' EPV<sub>10%</sub> '''
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| Conventional method (using PV as a risking measure)
| rowspan = 3 | Conventional method (using PV as a risking measure) || PV@ 10% = [[cost::2,000,000 USD]]
| PV@ 10% = [[cost::2,000,000 USD]]
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| PV @ 18% = [[cost::1,000,000 USD]] = conventional bid to allow for risk = ''' [[cost::1,000,000 USD]] '''
| PV @ 18% = [[cost::1,000,000 USD]] = conventional bid to allow for risk = ''' [[cost::1,000,000 USD]] '''
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| PV @ 20% = [[cost::800,000 USD]] = more prudent bid to guard against overestimating = ''' [[cost::800,000 USD]] '''
| PV @ 20% = [[cost::800,000 USD]] = more prudent bid to guard against overestimating = ''' [[cost::800,000 USD]] '''
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