Home  Journals  Economic Analysis: Theory and Practice  40(391) - 2014 October

Applying the models of simultaneous investment and financial planning for preliminary appraisal of investment projects in a special economic zone

Available online: 26 October 2014

Subject Heading: ECONOMIC AND MATHEMATICAL MODELING

JEL Classification: 

Pages: 57-68

At present, such regional integration forms as Special Economic Zones (SEZ), regional clusters, innovation centers, science parks and techno parks seem to have become the most effective instruments of economic growth. The success of these mechanisms depends directly on efficient selection of investment projects. In this regard, applying modern mathematical modeling techniques for preliminary project evaluation remains relevant. Simultaneous (synchronous) investment and financial planning models based on mixed-integer linear programming are of particular interest. These models enable to prove (or to disprove) financial feasibility of an investment project and to find its optimal financial scheme. The article presents an industrial project evaluation model that takes into account taxation, financial feasibility and liquidity condition. The procedure bases on the complete financial plan optimization model for maximizing net worth value or net present value. We demonstrate the capabilities of the model using a (hypothetic) production project of the Lipetsk SEZ. The sensitivity analysis of the developed financial plan bases on investigating the influence of the following initial conditions: capital structure policy at different life-cycle stages; the size of initial equity investment; interest rates and payment conditions of long-term and short-term loans; interest rates and maturity of deposits; the rate of discount. The completed research has proved that the suggested model provides: a balanced financial scheme; optimized sequence of commissioning production lines; the best use of cash flow generated by the project. Such models can serve as a preliminary evaluation tool of investment projects for operators of industrial or innovative Special Economic Zone.

Keywords: simultaneous, investment, financial, planning, mixed-integer linear programming, wealth, investor, net present value, complete financial plan, industrial project, preliminary, project evaluation, special economic zone

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