NPV-at-risk method in infrastructure project investment evaluation

Strategic capital investment decisions are crucial to a business firm. The decision to invest in privately financed infrastructure projects requires c areful consideration, because they are exposed to high levels of financial, political, and market risks. The project appraisal methods should incorpor ate analysis of these risks. A number of capital-investment decision method s can take risks into account, but each of them focuses on different factor s and has its limitations. Thus, a more vigorous method is needed. A system atic classification of existing evaluation methods shows that it is possibl e to develop a new method-the net-present-value-at-risk (NPV-at-risk) metho d-by combining the weighted average cost of capital and dual risk-return me thods. The evaluation of two hypothetical power projects shows that the NPV -at-risk method can provide a better decision for risk evaluation of, and i nvestment in, privately financed infrastructure projects.