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Including Risk in Economic Feasibility Analyses: The Case of Ethanol Production in Texas

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Author Info

  • Richardson, James W.
  • Herbst, Brian K.
  • Outlaw, Joe L.
  • Gill, Robert Chope, II

Abstract

The widespread use of personal computers and spreadsheet models for feasibility studies makes risk-based Monte Carlo simulation analysis of proposed investments a relatively simple task. Add-in simulation packages for Microsoft® Excel can be used to make spreadsheet models stochastic. Rather than basing investment decisions on point estimates, investors can easily estimate the implied distributions of returns for uncertain investments and calculate the risk of an investment as well as the probability of success. The benefits of using Monte Carlo simulation to analyze a risky investment are demonstrated using an ethanol plant as an example.

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Bibliographic Info

Article provided by Agricultural Economics Association of Georgia in its journal Journal of Agribusiness.

Volume (Year): 25 (2007)
Issue (Month): 2 ()
Pages:

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Handle: RePEc:ags:jloagb:62291

Contact details of provider:
Postal: 301 Conner Hall, University of Georgia, Athens, GA 30602-7509
Web page: http://www.agecon.uga.edu/~jab/
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Related research

Keywords: economic feasibility analysis; ethanol feasibility; risk management; stochastic simulation; Agribusiness; Research and Development/Tech Change/Emerging Technologies;

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Cited by:
  1. Curtis, Kynda R. & Cowee, Margaret W. & Kim, Man-Keun & Harris, Thomas R., . "Evaluating Returns to Cool Season Grass Quality Characteristics for Niche Equine Feed Markets," Journal of Agribusiness, Agricultural Economics Association of Georgia.
  2. Yi, Fujin & Lin, C.-Y. Cynthia & Thome, Karen, 2013. "An Analysis of the Effects of Government Subsidies and the Renewable Fuels Standard on the Fuel Ethanol Industry: A Structural Econometric Model," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150224, Agricultural and Applied Economics Association.
  3. Dlamini, Thula S. & Fraser, Gavin C.G., 2010. "Economics of Meat Production from the Springbuck in the Eastern Cape Karoo," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96181, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
  4. Morris, Brittany D. & Richardson, James W. & Frosch, Brian J. & Outlaw, Joe L. & Rooney, William L., 2009. "Economic Feasibility of Ethanol Production from Sweet Sorghum Juice in Texas," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46852, Southern Agricultural Economics Association.
  5. Curtis, Kynda R. & Bishop, Carol & Harris, Thomas R., 2009. "Economics of Alternative Crop Production in Arid Regions," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48053, Australian Agricultural and Resource Economics Society.

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