Financial Evaluation in Project Appraisal : A Value Added Approach

The purpose of this article is to outline various cost-benefit financial evaluation methods for use in project appraisal with regard to private capital investment projects with the inclusion of uncertainty and risk allowance factors in determining the net expected financial return from a given capital investment project. Two factor allowances for uncertainty have been used: the first deals with uncertain future benefit and cost streams and utilizes linear approximations for non-linear continuous functions of random variables using the inverse-transformation technique and the invariance method of maximum likelihood estimation, while the second is a von-Neumann covariance risk factor controlling for the project's external environment. Results yield two general indicators of important use in project evaluation: value and net value-added, the former being an indicator of project feasibility while the latter an indicator for investment profitability