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Simulation-based valuation of project finance investments in sub-Saharan Africa and its effects on net present value and default probabilities
This paper addresses the issue surrounding the valuation of valuing large-scale infrastructure projects located in emerging and frontier market countries. These are economies which, traditionally, have been characterised as having high levels of risk and uncertainty, thus presenting a significant ch...
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| Format: | Thesis |
| Language: | English |
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Research of GSB
2018
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| Summary: | This paper addresses the issue surrounding the valuation of valuing large-scale infrastructure projects located in emerging and frontier market countries. These are economies which, traditionally, have been characterised as having high levels of risk and uncertainty, thus presenting a significant challenge to capital allocation decisions and the associated theme of narrowing the finance gap. In light of this, a case study is used to investigate the impact that simulation has on the valuation of an actual infrastructure project located in a sub-Saharan African economy. Specifically, a Monte Carlo simulation-based cash flow model is presented of an investment into a renewable energy project located in South Africa. Results of the simulation process indicate the degree to which certain variables affect the output factors, juxtaposed with an initial base case. A clear need is established for a more sophisticated valuation method in order to accurately judge the investment opportunity and Monte Carlo simulation is presented as a viable solution. |
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