EVALUATION OF INVESTMENT PROJECT FOR BIOMASS USAGE WITH RISK CONSIDERATION

Abstract

The paper is focused on a creation and evaluation of the investment project of pelletisation line purchase with a risk taken into consideration via a simulation model. The decision making subject was offered a choice of two pelletisation lines differentiating in technical parameters and purchase costs. The fundament of this work was a creation of a multi period balance model and formation of ten variants of the individual projects which differ in production volume and mean of financing. The main evaluation criterion of the deterministic calculations was a net present value which takes into consideration the time factor and belongs among the dynamic methods. By means of sensitivity and simulation analysis is possible to identify an appropriate investment strategy under the risk conditions. The risk factors, which were identified by sensitivity analysis, are defined as random variables with certain probability distribution. Critical values of target criterion give information value which we can expect with willingness to tolerate given risk quantification. The comparison of distribution functions of investment alternatives allows the identification of the optimal strategy. On the basis of the gained results we came to the conclusion that the purchase of the pelletisation line is a profitable investment which can increase the value of the company itself.

Keywords: biomass, investment, multiperiodical balance model, net present value, pelletisation line, risk evaluation, simulation model.

Article DOI: http://doi.org/10.15544/RD.2015.087