Farid, F; Boyer, L T and Kangari, R (1989) Required return on investments in construction. Journal of Construction Engineering and Management, 115(1), pp. 109-125. ISSN 0733-9364
Abstract
Construction risk is exposure to possible economic loss arising from involvement in the construction process. A unified-field-theory classification of the risk-adjusted discount rate (RADR) methods demonstrates that modem portfolio and capital-market theories can be translated into RADR models. Project in market context, firm in market context, and project in firm context assume perfect (efficient) capital market. The first two claim unsystematic risk is irrelevant. Project in firm context assumes that only marginal unsystematic risk of the project is relevant. Project in isolation, which is based on the total risk of the project, is not an optimal investment policy. Project in firm context is not practicable due to real-world constraints. Project in market context is theoretically superior. However, the systematic risk index, beta, cannot be easily determined. Therefore, for a simple accept/reject decision, firm in market context resulting in an average cost of capital is the only practicable alternative for determining the required rate of return.
| Item Type: | Article |
|---|---|
| Index terms: | return on investment, exposure, construction process |
| Subjects: | public and environmental health, building construction, economic analysis |
| Topics: | Business Strategy, Health and Safety, Site Management |
| Descriptive scope: | 2 PC |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here