Computer Simulation Model for Risk-Adjusted Investment Analysis

Abstract

This study involves the development of a simulation model for the analysis of possible investment alternatives. The model is written in Fortran programming language and employs the net present value method of analysis. A unique feature of this model is its ability to incorporate the farmer's attitude toward risk into the analysis. This simulation model enables interested farmers to analyze a potential investment under varying production and marketing conditions as well as under variations in their attitude toward risk. Alternative simulations of the model reflecting different risk-attitudes reveal that behavior towards risk does have a definite impact on the feasibility of a risky investment. This impact indicated by the decreasing net present value noted as the level of risk-aversion increases.