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Two phase parametric and probabilistic NPV calculations, with possible deferral of disposal of UK nuclear waste as an example

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  • Chapman, Chris
  • Howden, Mike

Abstract

This paper illustrates the value of several particular features of a first phase parametric approach to discounted cash flow (DCF) decision analysis when significant uncertainty is involved. It also illustrates the value of second phase probabilistic approaches to selected parameters for five quite different example reasons. The most controversial example reason concerns the discount rate. The particular example used to illustrate both phases may stimulate general interest because of the important issues involved, but it is argued that the two phase approach as a whole has a wide range of applications for decisions large and small.

Suggested Citation

  • Chapman, Chris & Howden, Mike, 1997. "Two phase parametric and probabilistic NPV calculations, with possible deferral of disposal of UK nuclear waste as an example," Omega, Elsevier, vol. 25(6), pages 707-714, December.
    • Handle: RePEc:eee:jomega:v:25:y:1997:i:6:p:707-714
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    References listed on IDEAS

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    1. Trigeorgis, Lenos, 1993. "The Nature of Option Interactions and the Valuation of Investments with Multiple Real Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(1), pages 1-20, March.
    2. Chapman, C. B. & Cooper, Dale F, 1983. "Parametric discounting," Omega, Elsevier, vol. 11(3), pages 303-310.
    3. Trigeorgis, Lenos, 1991. "A Log-Transformed Binomial Numerical Analysis Method for Valuing Complex Multi-Option Investments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(3), pages 309-326, September.
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