The Issue of Investment Decision-Making of Leveraged Projects

Abstract

Investment decision-making is based on many criteria and analysis. Currently, the projects imposed many requirements that are often in mutual contradiction or project is very risky. One example for increasing risk of the project is a financing by debt. The paper is focused on the issue of leveraged projects, because their valuation is different from the valuation of projects financed merely by equity, and an existence of some financial effects of leverage affects financial decision-making. Hence, a general method of quantification of net present value and adjusted net present value is described. Next, it is focused on sensitivity analysis as a one of the steps of risk analysis. The aim of the paper is to analyse the net present value of the certain leveraged project, make a sensitivity analysis of the project and identify significant factors that affect the project value. Finally, there are mentioned some weaknesses of sensitivity analysis and other methods used for risk analysis.