Click on the following link to read the full Academic Paper written by Michael Chappell.
Excerpt from the paper…
Traditional methods look at comparative rates of financial return on alternate uses of scarce capital. These methods examine the likelihood of future cashflows for well-understood activities, with higher discount rates for riskier projects. Examples include:
- Simple Return on Investment (ROI)
- Internal Rate of Return (IRR)
- Net Present Value (NPV)
This approach tends to perpetuate relatively conservative, low-risk models of investment, driven by property projects with certain financial outcomes. If projects under assessment do not meet conventional financial investment return thresholds, they are typically not pursued.
Land and Building Development at Curtin
Simply represented in Figure 1, the stock of land and buildings at Curtin is added to by inflows of new building investment and subtracted from by maintenance and depreciation.
Figure 1: Simple Land & Building Stock and Flows
Traditional financial analysis would consider the building investment required to generate sales and rent revenue after outgoings and depreciation. If the return on the building investment were sufficient to meet the financial return goal, then the project would proceed. Projects that do not show sufficient commercial return (measured by ROI, IRR and NPV) would not proceed, even if there were other good reasons to go ahead with the development. It is because these other justifications are unknown or not properly measured that many meritorious projects never occur.”