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Economic Analysis: Theory and Practice
 

Probability tree of an investment project and other methods to assess investment projects' efficiency

Vol. 14, Iss. 36, SEPTEMBER 2015

PDF  Article PDF Version

Received: 29 May 2015

Received in revised form: 8 July 2015

Accepted: 4 August 2015

Available online: 10 October 2015

Subject Heading: EVALUATION OF INVESTMENT PROJECTS

JEL Classification: 

Pages: 27-36

Turgaeva A.A. Astrakhan State Technical University, Astrakhan, Russian Federation
a_turgaeva@mail.ru

Subject When implementing an investment project, there may be situations leading to negative consequences for its participants. At the beginning, it is important to estimate return on investment and decide on the profitability of the employment of capital as compared to investing in risk-free securities or interest-bearing deposit. Then it is necessary to choose the option, which will earn maximum profit. An investment project is estimated to determine its potential appeal and to search for sources of funding.
     Objectives The study aims to develop projects for efficient financial investments, using the methods and models of investment analysis and forecasting.
     Methods I employed general scientific methods, namely, the statistical, monographic, experimental, balance, and economic-and-mathematical method to analyze different ways of investing, and determined the most effective models of investment analysis.
     Results I reviewed possible options of investment projects on the case of a small retailer. The article presents the probability tree as a variant of the distribution of possible net present values of the investment project. Furthermore, the article presents the developed stages of building a decision tree and the calculated mathematical expectation that characterizes the average return and the standard deviation, i.e. the project risk assessment.
     Conclusions The analysis of the methods for assessing investment projects shows the need to improve the activities of the enterprise under investigation, and to implement the investment projects.

Keywords: investment project, probability tree, standard deviation, mathematical expectation, risk assessment

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