Investment Projects Appraisal under Risk Conditions: Evidences from Poultry Production Project in Tehran Province

In the normal investment appraisal methodology, recognizing that the project’s key variables are not certain, sensitivity and scenario analysis tests are used to appraise only a few possible scenarios. But risk analysis in investment appraisal approach presents probability distribution of all possible outcomes in addition to their expected returns and thus gives investor complete risk/return information of the investment project. In this study, the methodology of risk analysis in investment appraisal is explained based on Monte Carlo simulation technique and is applied to a poultry production project in Tehran province. Poultry meat, soybean and corn prices are project’s key risky variables. Results show that the mean of project’s net present value (NPV) is 125.84 million Rials with a 95% confidence interval around the mean value of -232 to 524 million Rials. The probability of generating a positive NPV is about 74.04%. Also coefficient of variation of NPV and expected loss ratio are 1.53 and 0.16 respectively and cost of uncertainty is -28.25 million Rials.