Investment decision in integrated steel plants under uncertainty

Ozorio, Luiz de Magalhães; Bastian-Pinto, Carlos de Lamare; Baidya, Tara Keshar Nanda; Brandão, Luiz Eduardo Teixeira

doi:10.1016/j.irfa.2012.06.003

Cited by 18 publications

(8 citation statements)

References 14 publications

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“…Since then, scholars have applied ROA to numerous economic sectors. For example, Ozorio et al [22] employed ROA to evaluate the switch option of a hypothetical integrated steel plant composed of a blast furnace and a hot laminator. Zhu [23] conducted ROA with least squares MCS to estimate the investment value of a nuclear power generation plant.…”

Section: Real Options Analysis(roa)mentioning

confidence: 99%

Using Expanded Real Options Analysis to Evaluate Capacity Expansion Decisions Under Uncertainty in the Construction Material Industry

Momani

Al-Hawari

Mousa

2016

SAJIE

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Capacity expansion generally requires large capital expenditure on illiquid assets. Therefore, decisions to enlarge capacity must support the organisation's strategic objectives and provide valuable input for the budgeting process. This paper applies an expanded form of Real Options Analysis (ROA) to generate and evaluate capacity expansion strategies under uncertainty in the construction material industry. ROA is applied to different expansion strategies associated with different demand scenarios. Evaluating a wider variety of strategies can reduce risk and sponsor decisions that maximise the firm's value. The case study shows that the execution of a lead expansion strategy with 10-year intervals under a 50 per cent demand satisfaction scenario produces superior results. OPSOMMINGDie uitbreiding van kapasiteit vereis gewoonlik groot kapitaalbesteding op nie-likiede bates. Besluite om kapasiteit te vergroot moet dus die organisasie se strategiese doelstellings ondersteun en waardevolle insette tot die begrotingsproses lewer. Hierdie artikel pas ŉ uitgebreide vorm van ware keuse analise toe om die kapasiteit uitbreidingstrategieë te genereer en te evalueer. Hierdie strategieë is vermoeid met onsekerheid in die boumateriaal industrie. Ware opsies analise (Real Options Analysis) is toegepas op verskillende uitbreidingstrategieë wat met verskillende vraagscenario's verband hou. Deur ŉ groter verskeidenheid van strategieë te evalueer kan risiko verminder en besluite lewer wat ŉ firma se waarde maksimeer. Die gevallestudie toon dat die uitvoer van ŉ uitbreidingstrategie met tien jaar intervalle onderhewig aan ŉ 50 per sent vraagbevrediging scenario die beste resultate lewer.

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Section: Real Options Analysis(roa)mentioning

confidence: 99%

Using Expanded Real Options Analysis to Evaluate Capacity Expansion Decisions Under Uncertainty in the Construction Material Industry

Momani

Al-Hawari

Mousa

2016

SAJIE

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“…In a model more closely related to this work, Ozorio et al (2013) value both a temporary and a partial plant shutdown in a semi-integrated steel mills, but provide no consideration of switching costs.…”

Section: The Final Risk Free Simulation Form Is Shown In Equationmentioning

confidence: 99%

Valuing flexibility in electro-intensive industries: the case of an aluminum smelter

Bastian-Pinto

Brandão

Ozorio

2015

Prod.

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Electro-intensive industries account for a significant proportion of the total industrial electricity consumption, and these industries usually possess co-generation assets, which can supply at least part of their energy needs. However, due to price uncertainty, it may be optimal for the firm to temporarily suspend production and sell the available energy. If this strategy creates value, governments can create incentives through price signals for these firms to take their plants offline and increase the supply of electricity during times of shortage. This study analyzes the case of an aluminum plant that has the choice of temporarily suspending operations and models its managerial flexibility as a bundle of European switch options. The suspension and modeling would occur under two simultaneous situations, uncertainty and asymmetric state switching costs under the real options approach, to determine whether the changes add value to the firm. The results indicate that this flexibility can add significant value to the firm.

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“…Furthermore, the rate of return can be influenced by the performance of institutions in the country, though not explicitly (Child and Yuan 1996;Nelson 2005). Finally, investment decisions can be influenced by barriers that might be due to the state of current regulations in a country (Ozorio et al 2013) or in the European Union (Volker et al 2009), which are very visible in the area of environmental protection (Laurikka and Koljonen 2006).…”

Section: Introductionmentioning

confidence: 99%

External Factors Affecting Investment Decisions of Companies

Białowolski

Węziak‐Białowolska

2014

Economics

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In this paper, we attempt to investigate the importance of certain external factors on the investment decisions made by Polish companies. With the use of data from the tailor-made Survey on Receivables, we (1) examine factors influencing investment decisions of companies in Poland; (2) assess the relation between branch, company size and investment factors; (3) evaluate the importance of the investment factors; and (4) determine the relative influence of these factors on the company-level investment reductions. The results show that first, although the problem of payment delays is the most important single issue determining the investment decisions of Polish companies, its importance decreases when analysed simultaneously with other issues. Second, among the indicators selected for an assessment of investment decisions, two driving forces determine the investment decisions of Polish companiesnamely, macroeconomic factors and law-related factors, with the relative importance of the former lower than the latter. Third, there is a positive association between the importance of each of the two factors and the actual investment reductions, implying that among companies facing higher investment reductions, the importance of macroeconomic and law-related factors is higher. JEL D92 G11 G31

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Investment decision in integrated steel plants under uncertainty

Cited by 18 publications

References 14 publications

Using Expanded Real Options Analysis to Evaluate Capacity Expansion Decisions Under Uncertainty in the Construction Material Industry

Using Expanded Real Options Analysis to Evaluate Capacity Expansion Decisions Under Uncertainty in the Construction Material Industry

Valuing flexibility in electro-intensive industries: the case of an aluminum smelter

External Factors Affecting Investment Decisions of Companies

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