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

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

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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File URL: http://purl.umn.edu/62291
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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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