A model for financial evaluation of specialized construction engineering projects

Abstract

The financial evaluation of construction projects is key to take any type of investment decision. The way in which construction projects are evaluated in Colombia is inadequate from the financial and analytical perspectives. This research proposes a more precise way to perform a financial analysis through the use of a model that allows the consideration of the behaviour of macroeconomic and microeconomic variables that impact the sector. This is done by means of the projection of a free cash flow, which is discounted through the weighted average cost of capital (WACC). The net present value and the net profit are obtained by Monte Carlo simulation, using the Crystal Ball program, which provides a confidence interval of the expected results and points out the variables that most affect the value in this type of businesses.