South African Journal of Economic and Management Sciences
On-line version ISSN 1015-8812
CAMPHER, CA and VLOK, PJ. Building a scenario based active mapping investment tool within a physical asset management framework. S. Afr. j. econ. manag. sci. [online]. 2014, vol.17, n.2, pp. 194-206. ISSN 1015-8812.
This study explores the implementation of an integrated capital budgeting visual mapping framework comprised of both Discounted Cash Flow (DCF) and Real Options Analysis (ROA) techniques. Physical asset investment decisions are based largely on rigid discounted cash flow tools which provide untimely and incomplete decisional criteria. While literature outlines the widespread use of traditional DCF techniques, it nevertheless reveals extensive limitations, including its static inflexibility and slow-to-evolve framework. ROA is a more recent valuation tool based on stock option theory. It brings into account added value found in the flexibility of managerial decision-making and uncertain conditions. This study implements a combined DCF and ROA capital budgeting tool within a Physical Asset Management (PAM) environment. The validity of the framework is realised through an industry-relevant case study presented by a South African mining company.
Keywords : capital budgeting; real options; black-scholes; option mapping; asset management.