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Investment Analysis of Agri-Food Ventures: What Risk Premia are Appropriate? The Silence of the Literature

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  • Unterschultz, James R.
  • Quagrainie, Kwamena

Abstract

Financial principles of project investment analysis deal with the cost and benefit flows over time. Invariably, the correct future cash flows and exact risks are unknown. The agricultural academic literature devotes substantial energy to discussing the estimation of the cashflows but it is relatively silent on applied estimation of risk. Empirical studies on agri-food ventures have made little or no attempt to estimate appropriate risk adjusted discount rates or other risk measures. Choice of discount rate has been arbitrary. Thus little guidance has been given to practitioners analysing agri-food investments as to the appropriate risk adjusted discounts rates. The Capital Market Line provides a relatively straightforward way to calculate risk premiums for project investments by non-diversified investors. These risk premiums can then be used in Net Present Value investment analysis.

Suggested Citation

  • Unterschultz, James R. & Quagrainie, Kwamena, 1997. "Investment Analysis of Agri-Food Ventures: What Risk Premia are Appropriate? The Silence of the Literature," 11th Congress, University of Calgary, Canada, July 14-19, 1997 346431, International Farm Management Association.
    • Handle: RePEc:ags:ifma97:346431
    DOI: 10.22004/ag.econ.346431
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    References listed on IDEAS

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