The Use of Monte Carlo Simulation in Capital Budgeting: An Implementation on an Airport Privatization

İsmail Çağrı Özcan
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İsmail Çağrı Özcan: Yildirim Beyazit University

Journal of Finance Letters (Maliye ve Finans Yazıları), 2024, vol. 39, issue 121, 71-87

Abstract: The success of capital budgeting methods depends on the consistency of the estimates. Considering this, Monte Carlo simulation, which has recently been used in various sub-fields of finance, especially capital budgeting, becomes a powerful tool that allows successful risk assessments in an environment of financial uncertainty. This study calculates the net present value of an airport privatization project for three scenarios and reports the expected net present value distributions for 10,000 trials. The results show the Monte Carlo simulation is an important tool in capital budgeting, especially to measure the possible changes in the net present value of the project.

Keywords: Capital Budgeting; Project Evaluation; Financial Risk Analysis; Financial Feasibility; Net Present Value (search for similar items in EconPapers)
JEL-codes: G17 G31 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:acc:malfin:v:39:y:2024:i:121:p:71-87

DOI: 10.33203/mfy.1280296

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