This paper proposes a method for evaluating a project under certainty by means of a systemic outlook, which borrows from accounting the way of representing economic facts while replacing accounting values with cash values. The investor's net worth is regarded as a system whose structure changes over time. On this basis, a profitability index is presented, here named Systemic Value Added (SVA), which lends itself to a periodic decomposition. While as an overall index the Systemic Value Added coincides with the Net Final Value (NFV) of an investment, the systemic partition of a SVA is shown to differ from the Net Present Value (NPV) decomposition model proposed by Peccati (1987, 1992), which in turn bears a strong resemblance to Stewart's (1991) EVA model. The different assumptions the three models rely on are analysed: Some inconsistencies arise in the NFV-based approach, which give rise to Peccati's and Stewart's model, but they can be healed (only in a certain sense) by re-shaping the model and taking account of the systemic approach. To this end, the introduction of a shadow project is needed which enables us to avoid compounding. An interesting result is that we can decompose the SVA of a project by applying Peccati's argument to its shadow, or which is the same, by computing the shadow project's Economic Value Added. The paper then generalizes the approach allowing for a portfolio of projects, multiple debts and multiple synchronic opportunity costs of capital, for which a tetra-dimensional decomposition is easily obtained.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by UNIVERSIDAD TECNOLÓGICA DE BOLÍVAR in its series Documentos de Trabajo with number
005737.