Abstract
Background: The commonly used methods for the financial evaluation of plantation forest investment projects do not incorporate uncertainties and ignore the value related to flexibility. The real options analysis makes it possible to capture these values in investment projects, increasing their value and return. Despite this, studies involving real options in forest investment projects are scarce, specifically those related to Pinus spp. Therefore, this study aimed to: (a) analyze whether the real options analysis adds value to investment projects of Pinus elliottii Engelm. plantations; and (b) make the real options analysis more accessible to forest managers and potentially increase its use in the investment projects of Pinus spp. plantations. Methods: We evaluated two investment projects in P. elliottii plantations in southern Brazil, which differed in the way of obtaining the land for planting: with lease or purchase of land on a planning horizon of 21 years. In the real options analysis, we used deferral, expansion, and abandonment. Results: Individually, the deferral, expansion, and abandonment options add value to investment projects in Pinus elliottii plantations. The option to expand the forested area is one that adds the most value to the investment project with land lease. In the investment project with land purchase, it is abandonment. Conclusions: Investment projects in Pinus elliotti plantations that contemplate the land purchase analyzed through the real options analysis present higher financial returns than those that consider land lease, inverting the result provided by the traditional analysis.
Highlights
The forest plantations require important financial contributions because they are being long-term projects, usually under conditions of uncertainty, with managerial flexibilities that can be exercised over the useful life of the biological asset
The investment project with the land purchase was not viable, as the net present value (NPV) was less than zero since disbursements were not recovered over the life of the project and managers only decide to invest if the project creates value, that is, if the NPV is positive
By the traditional analysis of investment based on discounted cash flow, the project with land purchase would be neglected and an investor would look for alternatives with a positive NPV to allocate his capital
Summary
The forest plantations require important financial contributions because they are being long-term projects, usually under conditions of uncertainty, with managerial flexibilities that can be exercised over the useful life of the biological asset. The planting of homogeneous forests has been increasing in order to meet the growing demand for wood in world markets [5]. In Brazil, the area of forest plantations totals. Forest management integrates silvicultural practices and business concepts, as economic alternatives, in order to better achieve the investor’s objectives [7]. The analysis of a forest investment involves the use of techniques and criteria that compare costs and revenues inherent to the project, aiming to verify whether or not it should be implemented [8]
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