Financial feasibility analysis with Monte Carlo simulation of an investment in a company of the salt industry

Abstract

The aim of this paper was to use financial administration tools to analyze the economic and financial feasibility of the investment in a new machine for the production of refined salt in a company of the city of Mossoró. We conducted a case study based on projections of construction costs and revenues of the cash flow of an investment made less than a year ago. After applying capital budgeting techniques, we discovered that the proposed investment was financially feasible. The use of Monte Carlo simulation techniques enabled us to carry out a probabilistic analysis, which resulted in taking safer decisions in face of risk analysis for different scenarios, demonstrating that the investment can have considerable risks in the case of pessimistic scenarios, with a 28.2% probability of having NPV less than zero. This study should be carried out again by the company so that the analysis can be made based on actual data for the period related to the first year following the investment, comparing the results obtained through projections to actual results.