Kjetil Emhjellen, Magne Emhjellen
When evaluating new investment projects, oil companies traditionally use the discounted cashflow method. This method requires expected cashflows in the numerator and a risk adjusted required rate of return in the denominator in order to calculate net present value. The capital expenditure (CAPEX) of a project is one of the major cashflows used to calculate net present value. Usually the CAPEX is given by a single cost figure, with some indication of its probability distribution. In the oil industry and many other industries, it is a common practice to report a CAPEX that is the estimated 50/50 (median) CAPEX instead of the estimated expected (expected value) CAPEX. In this article we demonstrate how the practice of using a 50/50 (median) CAPEX, when the cost distributions are asymmetric, causes project valuation errors and therefore may lead to wrong investment decisions with acceptance of projects that have negative net present values.
@article{2398804c-75e7-4734-b6e4-06e69cdd9ccd,
title={Cost Estimates and Investment Decisions},
author={Kjetil Emhjellen and Magne Emhjellen},
year={2026},
language={en}
}TY - JOUR TI - Cost Estimates and Investment Decisions AU - Kjetil Emhjellen AU - Magne Emhjellen PY - 2026 LA - en ER -
Unknown, Unknown
This chapter discusses metal casting processes, highlighting the diversity and common characteristics among them. The objective is to elucidate the fu
Unknown, Unknown
This study focuses on the fundamental characteristics of solid iron, which is predominantly composed of iron atoms and provides a basis for understand
Ir. Méshac KIME ILUNGA
Ce document traite des procédés métallurgiques spéciaux, en mettant particulièrement l'accent sur l'extraction liquide-liquide, un processus mis au po
Copper solvent extraction units at large hydrometallurgical plants face constraints in metal recovery, phase disengagement, and reagent consumption, d
Non spécifié
L'hydrométallurgie du cuivre, principalement axée sur les minerais oxydés facilement solubles, s'applique également aux minerais sulfurés ou mixtes ap