A case study on application of heavy industry capital investment appraisaland management procedure

This paper analyzes the facility investment appraisal processes of heavy in dustry and proposes several improving points in its application. For this p urpose, investment appraisal sheets which have been used for investment pro posals are investigated in terms of the discounted cash flow (DCF) method. As a result, the differences between the theory and its application are cla rified. An attempt is made to resolve these differences by applying the DCF method including explicit use of actual cash flows in revenue and expense expressions. In this study, it is also proposed that a certain portion of t he capital loss caused by defending facility sales may not be the sunk cost . Due to lack of the used asset market, it is common to earn much lower sal vage value than its economic one. The portion of the capital loss, which sh ould be included as incremental costs in the investment decision, can be co nceptually evaluated by calculating the difference between economic value a nd sales price.