Even minor errors in the analysis of an investment project can seriously complicate the work of a financial director. In an optimistic scenario, actual indicators will be significantly lower than predicted.
Errors in calculating the project payback period
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In a pessimistic scenario, in a few years it may turn out that the project concept was initially unviable and resources were wasted. Let's take a closer look at what miscalculations lead to erroneous decisions and how to avoid them.
Incorrect assumptions
Often, errors in calculating the project's payback period arise already at the investment planning stage. It is necessary to pay attention to a number of inaccuracies that can negatively affect the results of the analysis:
an incomplete list of panama phone data investments, including erroneous construction estimates and unaccounted for design costs;
incorrect assessment of customs duties and fees (when importing equipment);
incorrect calculation of VAT refunds, as well as the investments themselves, without taking into account VAT or customs duties;
erroneous presentation of all investment costs as one-time (for example, in the first month of project implementation) without taking into account possible deferrals from equipment suppliers, construction and design organizations.
Misdetermination of the discount rate
A significant miscalculation in assessing payback is an inaccurate calculation of the discount rate. Difficulties arise when calculating the weighted average cost of capital (WACC). The use of balance sheet proportions of borrowed and equity funds is not always correct, since for non-public companies the balance sheet valuation of equity capital may differ significantly from its market value.