3. Electronic Theses and Dissertations (ETDs) - All submissions
Permanent URI for this communityhttps://wiredspace.wits.ac.za/handle/10539/45
Browse
3 results
Search Results
Item A comparison of real options and discounted cash flow valuation techniques on a gold mining project(2019) Shivute, Amtenge PendaValuation of mineral assets is done for several purposes including for investment-decision making. There are three main valuation approaches used in mineral projects valuation including the income approach. Within the income approach, the static discounted cash flow (DCF) is the widely used technique. However, it has several limitations, the main one being that it is deterministic. To try and overcome this limitation Monte Carlo simulation is done on the input parameters to result in a Monte Carlo DCF (MCDCF) technique. Nonetheless, the MCDCF also has limitations, the main one being that it neglects the value of flexibility that management has due to those uncertainties during the life of mine (LoM). All these limitations may lead to undervaluing or overvaluing mineral projects, resulting in unrealistic projects values. Real Options Analysis (ROA) technique has been recognised as a better mineral projects valuation technique that considers uncertainty and managerial flexibility. The research study applied and compared the results of the static DCF, MCDCF and ROA techniques on an underground mining project with two possible extraction scenarios. The static DCF was used as the basis for the economic value of the mining project, while the MCDCF incorporated uncertainty in its input variables and quantified the risk associated with the project using @RISK software. The Binomial-Lattice was used to value managerial flexibility to defer the start of the project. The research study found that the static DCF resulted in an NPV of US$9.60 million and an IRR of 8.67% for Scenario 1 while Scenario 2 has an NPV of US$11.35 million and an IRR of 8.95%. These results show that the project is viable since the NPV is positive and the IRR is greater than the 5% discount rate. However, the MCDCF found that there is a chance that the project is unviable which could change the decision made based on the static DCF results from the MCDCF analysis, there is a probability of 0.21 that the project’s NPV and IRR will be negative and less than the discount rate, respectively for Scenario 1. For Scenario 2 there is a probability of 0.17 that the project’s NPV and IRR will be negative and less than the discount rate, respectively. The Binomial-Lattice model resulted in a higher iii NPV for both scenarios; US$17.34 million and US$21.52 million for Scenario 1 and Scenario 2, respectively. This is because the Binomial-Lattice uses a risk-free rate to discount cash flows, whereas the static DCF and MCDCF use risk-adjust discount rate. From these findings it can be concluded that the project is viable and that there is more value created when mining projects have the flexibility to delay the start of a project. Therefore, the company should proceed to a full feasibility study. Also, mineral projects valuators must use the MCDCF and ROA to quantify risk in mineral projects and to valuate flexibility in the face of uncertainty.Item Cash holding levels and performance of JSE-listed firms(2017) Maleka, MMThe purpose of this research is to carry out an empirical study into the determinants of cash and the relationship between the levels of cash holdings and performance by South African listed non-financial firms. Plots were used to identify trends of cash holding at both a market and an industry level. The study used Generalised Method of Moments “GMM” to examine the relationships, and the analysis was also carried out controlling for factors such as primary listing in SA vs non SA, firms listed on the JSE main board vs AltX, pre- vs post-2008 credit crisis, firm size quartile and industry. The study found a significant negative relationship between cash and asset tangibility ratios, capital expenditure, and firm size irrespective of the control variable under study, whilst leverage ratio remains an insignificant determinant of cash holdings by firms throughout. The significance of the cashflow volatility is the strongest amongst large firms and amongst firms in the Consumer Services industry. The study also found a significant positive relationship between performance and cash for both the operating and market performance measures under the baseline data, which is contrary to the agency theory that excess cash erodes value. However, the results changed when constraining the analysis to cash-rich firms, where an insignificant positive relationship was found between cash and operating performance, but a significant positive relationship between cash and market performance. These conflicting results show that in the presence of good form of corporate governance, excess cash holding may not necessarily erode shareholder value.Item Reviving Beta? Another look at the cross-section of average share returns on the JSE(2012-07-05) Page, DanielVan Rensburg and Robertson (2003a) stated that the CAPM beta has little or no relationship with returns generated by size and price to earnings sorted portfolios. This study intends to demonstrate that a reformulated CAPM beta, estimated using return on equity as opposed to share returns, unravels the size and value premium. The study proves that the “cash-flow” generated beta partially explains the cross-sectional variation in share returns when measured over the long run, specifically when portfolios are sorted on book to market, however the cash flow beta is less successful when attempting to explain the small size premium. The premise of the study is that the cash flow dynamics of share returns eventually dominate the first and second moments and thus result in cash flow based measures of risk and return that should succeed in explaining the cross-sectional variation in share returns. The study makes use of vector autoregressive models in order to examine the short term effect of structural shocks to the cash flow fundamentals of a stock or portfolio through impulse response functions as well as quantifying a long-term relationship between cash flow fundamentals and share returns using a VECM specification. The study further uses fixed effects, random effects and GMM/dynamic panel data cross-sectional regressions in order to examine the ability of the cash flow beta explaining the value and size premium. The results of the study are mixed. The cash flow beta does well in explaining the returns of portfolios sorted on book to market, but fails to do the same with size sorted portfolios. In the cash flow betas favour, it performs far better than the conventionally measured CAPM beta throughout the study.