Original Research

Building a scenario based active mapping investment tool within a physical asset management framework

Cedric Abraham Campher, PJ Vlok
South African Journal of Economic and Management Sciences | Vol 17, No 2 | a478 | DOI: https://doi.org/10.4102/sajems.v17i2.478 | © 2014 Cedric Abraham Campher, PJ Vlok | This work is licensed under CC Attribution 4.0
Submitted: 09 November 2012 | Published: 06 March 2014

About the author(s)

Cedric Abraham Campher, Stellenbosch University, South Africa
PJ Vlok, Stellenbosch University, South Africa

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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.


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