Application of modelling techniques in formation and assessment of investment projects in orchard


1Slovak University of Agriculture , Faculty of Economics and Management, Department of Statistics and Operation Research/Tr. A. Hlinku 2 SK-949 76 NITRA, Slovakia

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One of the appropriate ways of making investment alternatives, assessment and choosing the best variant is modelling approach. Models created in Excel enable us to simulate different alternatives in the financial coverage of investment as well as in credit and depreciation area. The multiperiodic balance models covering a period of 20 years include cost structure estimation (cost of capital, working capital, variable and fixe operating costs), the estimation of production, depreciation, the financing of investment project (equity and loans), repayment scheduling and projected annual income statement, cash flow and the balance sheet. We use data from financial report of different farms situated in similar conditions and assessed by expert estimations. The deterministic assessment of the efficiency of different investment projects is based on the evaluation of the criteria of Net Present Value. The model accepts to full extent initial decisions on the supposed yields, selling prices and the way of depreciation of orchard and its fencing. In other parts of the model, the investor introduces only prices per unit of labour to services such as pre-agglomeration of land, orchard plantation and its cultivation in different years, fencing and all other calculations are done automatically representing the intermediate results and model outputs. By changing input parameters of the model, the investor can test for the acceptability or unacceptability of the assumed changes based on the NPV as well as the financial coverage of the project at any time period. The investor can change the strategy of the structure and the scale of production, the financing of investment, loans or depreciation and he can follow the immediate effect of these changes on final results of efficiency of different investment scenarios. We analysed five variants of projects, which differ by structure plantation of apples or peaches and way of financial coverage. However, in order to maintain an objective evaluation of investment decision process, it is necessary to include the risk factor of its implementation. Risk factors identified by using sensitive analysis, are formulated in the following stochastic model as random variables with certain probability distribution. Critical values offer information on the expected value under the assumption of taking a certain level of risk. By comparing the distribution functions of each investment project, we identify the optimal strategy. The Simulation analysis is executed by the program Risk for Excel.

Keywords:investment decision making; investment project in vineyard; multiperiodical balance models net present value; risk analysis; simulation analysis.

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