"Monte Carlo Methods for Appraisal and
Valuation: A Case Study of a Nuclear Power Plant."
David C. Rode, Paul S. Fischbeck, and Steve R.
Appraisals typically are conducted using four standard methods approved by
the American Society of Appraisers. For large-scale, technically unique
projects, such as chemical and power plants, and old industrial practices,
these standard methods are insufficient. These types of projects contain
political, technical, and economic risks that are not accounted for in
standard valuation methods. To include these risks in an appraisal, a Monte
Carlo simulation method can be used. Probability distributions are used to
model the appropriate uncertainty. Modeling future decisions that may have to
be made concerning the project can also be included to add insight to the risk
involved. A case study of a nuclear power plant is presented. The use of Monte
Carlo methods and the modeling of future decisions decreased the worth of the
plant by 28% as compared to a standard income capitalization method.
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