Possibilities of MIRR method application for evaluation of investments in agriculture: An example of pigs fattening

Abstract

In the case of some agricultural investments, often net cash flow changes its sign from positive to negative, many times during the project. It causes the problem of internal rate of return calculation, which is an important indicator of economic effectiveness of investments. That is, in such situations, internal rate of return cannot be used. To solve this problem, modified rate of return is applied. This paper aimed to describe this method in detail, and to show its calculation for investments in pigs fattening. By application of modified internal rate of return it is determined that pigs fattening, under assumed conditions, is economically justified. Also, authors calculated the upper limit of discount rate (cost of capital), to which investment in pigs fattening is economically justified. It is concluded that, in the case of specific agricultural investments (such as pigs fattening), the use of traditional internal rate of return could give the wrong image on actual rate of return on investments.

Kod nekih investicija u poljoprivredi često se javlja situacija da neto novčani tok menja svoj znak iz pozitivnog u negativni više puta u toku trajanja projekta. To izaziva problem izračunavanja interne kamatne stope, koja je važan indikator ekonomske efektivnosti investicija. Odnosno, u takvim uslovima se interna kamatna stopa ne može koristiti. Da bi se rešio taj problem primenjuje se modifikovana interna kamatna stopa. Cilj ovog rada je da se detaljno opiše ova metoda i prikaže njen način izračunavanja kod investicije u tov svinja. Primenom modifikovane interne kamatne stope utvrđeno je da je tov svinja pod pretpostavljenim uslovima ekonomski opravdan. Takođe je izračunata i gornja granica diskontne stope (troškova kapitala) do koje je investicija u tov svinja ekonomski opravdana. Zaključeno je da kod specifičnih investicija u poljoprivredi (kao što je to tov svinja) upotreba tradicionalne interne kamatne stope može pružiti pogrešnu sliku o stvarnoj stopi povraćaja na investiciona ulaganja.