VALUATION APPLIED TO PROJECTS
Appraisal in finance means to calculate the just price of an asset (or a financial document representing that asset) whose produce profit.
In finance the key word is VALUATION, and its a part of the study of Corporate Finance.
To avoid any misunderstanding, “valuation” means identifying the fair price or intrinsical price of a company, a project or the modification of an existing company.
Let us take a look at valuation as applied to projects.
To evaluate a project (a company which not exist yet), we are calculating the Expected Intrinsical Price who represent the value that can be sell this project.
We have added “Expected” because to calculate its price we need to PROJECT its Cash Flow which is the equivalent of the project´s “fire power”. Therefore, adding the Present Value of this cash flow discounted at a just rate to obtain the desirous Expected Intrinsical Price.
If the value is greater than the investments needed to build the company, it will be a good way to undertake the project.
Calculate these Cash Flow is the tough and most important part of the valuation.
Please read the papers “ Why to valuate?” and “Don´t negotiate before appraising”.