Term Project Brief
Question: Apply NPV approach and the Monte Carlo Simulation to
the analysis of a real-life project
In this module, you have learned the appraisal tools, including the NPV approach and
the Monte Carlo Simulation approach. In this term project, you are required to apply
both analyses of a real-life project.
1. Review the literature associated with the two appraisal tools (preferably, 3-5
academic journal papers for each approach).
2. Justify the choice of your project. (i.e., whether you have chosen the right
appraisal techniques for the project of your interest.). It can be ongoing or
finished. It can be in any country. It can be of any type. However, an energy
project would be more interesting to look at.
3. Clearly explain the assumptions you make in the estimation of project cash flows.
For example, if you estimate revenue on the basis of a constant growth rate, you
have to explain why the rate is not expected to change over time. It can be justified
through an analysis of market competition conditions by using, say, Michael Port’s
five forces model or SWOP.
4. Clearly explain how you choose the project discount rate in the analysis of project
NPV and IRR.
5. Compare the results obtained from different approaches. If there is any disparity
between them, explain the reason and assess which result is more reliable.
6. In the discounted cash flow analysis, the potential profitability of a project is
measured by assuming the value of future cash flows. In ex-post analysis,
profitability of projects as well as the (positive or negative) value of cash flows
is evident from the project’s financial statements. This makes it possible to
assess more precisely the factors that affected the project’s profitability, for
example sector specific trends (e.g. technological change), market trends, and
transaction costs that may arise during the construction and operation process.
Provide an explanation, either by relying on financial statements or just by
showing knowledge of the sector, of how these factors may affect (in case the
project is still not completed) or have affected (in case the project is already in
operation) the profitability of the project you have selected.
7. Now provide a more detailed explanation of the transaction costs that may occur
(or have occurred) by considering the type of procurement method selected,
contractual arrangements adopted by project’s stakeholders, and the form of
8. (Bonus mark) The marker will be impressed if you can conduct interviews to
elicit experts’ view on the assumptions you make in the analysis and on the
plausibility of your appraisal results. You are also encouraged to compare your
results with those from your peers. But remember! You still need to demonstrate
why it is beneficial to make comparisons, namely that you need to explain why
there are extra insights to be gained.
At lease 2900 words, not counting diagrams, figures and tables and email permissions
Useful information sources/references
Your literature review is expected to cover important papers published by the
International Journal of Project Management
Construction Management and Economics
ASCE Journal of Management in Engineering
ASCE Journal of Construction Engineering and Management
Building Research and Information
Useful websites for project information
Zhulong study group https://www.zhulong.com/
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