1. Description of project selection
Two possibilities of building realization, including costs incurred during the whole
life cycle of a building, will serve as an example. Realization of A project is associated
with high construction costs (better quality and durability of products, solutions
ensuring energy acquisition from natural resources, etc.). It results in savings at the
stage of building exploitation. The second B project is being constructed with the use of
much lower financial resources. As a result, however, we incur higher costs of
renovations, heating, possible replacement costs, etc. Present value of future financial
outlays was determined based on a discount rate. A real discount rate used to make this
calculation is 8% (taking into account a market risk factor and inflation rates). The life
span of a building is taken to be 60 years. PERT approach was applied in order to assess
possible deviations from NPV value caused by the occurrence of chosen risk factors.
1. Description of project selectionTwo possibilities of building realization, including costs incurred during the wholelife cycle of a building, will serve as an example. Realization of A project is associatedwith high construction costs (better quality and durability of products, solutionsensuring energy acquisition from natural resources, etc.). It results in savings at thestage of building exploitation. The second B project is being constructed with the use ofmuch lower financial resources. As a result, however, we incur higher costs ofrenovations, heating, possible replacement costs, etc. Present value of future financialoutlays was determined based on a discount rate. A real discount rate used to make thiscalculation is 8% (taking into account a market risk factor and inflation rates). The lifespan of a building is taken to be 60 years. PERT approach was applied in order to assesspossible deviations from NPV value caused by the occurrence of chosen risk factors.
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