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The Use of Monte Carlo Simulation in Capital Budgeting: An Implementation on an Airport Privatization

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  • İsmail Çağrı Özcan

    (Yildirim Beyazit University)

Abstract

The success of capital budgeting methods depends on the consistency of the estimates. Considering this, Monte Carlo simulation, which has recently been used in various sub-fields of finance, especially capital budgeting, becomes a powerful tool that allows successful risk assessments in an environment of financial uncertainty. This study calculates the net present value of an airport privatization project for three scenarios and reports the expected net present value distributions for 10,000 trials. The results show the Monte Carlo simulation is an important tool in capital budgeting, especially to measure the possible changes in the net present value of the project.

Suggested Citation

  • İsmail Çağrı Özcan, 2024. "The Use of Monte Carlo Simulation in Capital Budgeting: An Implementation on an Airport Privatization," Journal of Finance Letters (Maliye ve Finans Yazıları), Maliye ve Finans Yazıları Yayıncılık Ltd. Şti., vol. 39(121), pages 71-87, April.
    • Handle: RePEc:acc:malfin:v:39:y:2024:i:121:p:71-87
    DOI: https://doi.org/10.33203/mfy.1280296
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    More about this item

    Keywords

    Capital Budgeting; Project Evaluation; Financial Risk Analysis; Financial Feasibility; Net Present Value;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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