Investment Analysis of Agri-Food Ventures: What Risk Premia are Appropriate? The Silence of the Literature

Jim Unterschultz and Kwamena Quagrainie

No 24131, Staff Paper Series from University of Alberta, Department of Resource Economics and Environmental Sociology

Abstract: Financial principles of project investment analysis deal with the cost and benefit flows over time. Invariably, the correct future cash flows and exact risks are unknown. The agricultural academic literature devotes substantial energy to discussing the estimation of the cash flows but it is relatively silent on applied estimation of risk. Empirical studies on agri-food ventures have made little or no attempt to estimate appropriate risk adjusted discount rates or other risk measures. Choice of discount rate has been arbitrary. Thus little guidance has been given to practitioners analysing agri-food investments as to the appropriate risk adjusted discounts rates. The Capital Market Line provides a relatively straightforward way to calculate risk premiums for project investments by non-diversified investors. These risk premiums can then be used in Net Present Value investment analysis.

Keywords: Agribusiness; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 16
Date: 1996
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Related works:
Working Paper: Investment Analysis of Agri-Food Ventures: What Risk Premia are Appropriate? The Silence of the Literature (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ualbsp:24131

DOI: 10.22004/ag.econ.24131

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