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Abstract
The widespread use of personal computers and spreadsheet models for feasibility
studies makes risk-based Monte Carlo simulation analysis of proposed investments
a relatively simple task. Add-in simulation packages for Microsoft® Excel can be
used to make spreadsheet models stochastic. Rather than basing investment
decisions on point estimates, investors can easily estimate the implied distributions
of returns for uncertain investments and calculate the risk of an investment as well
as the probability of success. The benefits of using Monte Carlo simulation to
analyze a risky investment are demonstrated using an ethanol plant as an example.