Economic efficiency assessment of investment

Abstract

The aim of the paper is to determine economic reasonableness of investments based on several methods of capital budgeting. The research was conducted on the example of purchasing 10 hectares of land that will be used for agricultural production of corn. Investment includes outflows for current assets necessary for starting of production on purchased land too. Financing is partially done from shareholders' equity and partially from agro industrial commercial bank loan. Dynamic capital budgeting methods for assessment of economic efficiency of planned investment are used in the paper. On the basis of net present value of 43,370 EUR, internal rate of return of 9.91% and profitability index of 1.22, it is concluded that economic efficiency is achieved by purchase of 10 hectares of arable land for growing corn.

Keywords

• net present value
• internal rate of return
• profitability index
• economically justified investments