Project financial modeling

<p>The present paper describes a proposed study that will examine project financial modeling techniques that take into consideration conditions of risk and uncertainty. The research will concentrate on the financial modeling of the company&rsquo;s &ldquo;Lesstroy&rdquo; project in the wood processing industry. The financial model will include such parts as defining expected cash flows, economic effectiveness evaluation, risk analysis etc. The project analyzed relies on Russian wood processing industry and called &ldquo;Building a highly efficient wood processing factory&rdquo;.</p><p>The <strong>main goal</strong> of the present research is to evaluate economic attractiveness of the project relying on the financial model.</p><p>Within this broad aim it is necessary to collect and scrutinize primary information on wood industry, identify its peculiarities; to conduct quantitative risk analyses, to create scenarios of the project extension and to apply the theory of real option in order to analyze economic effectiveness of the project.</p><p>The paper consists of introduction to the study, three main chapters, conclusion, references and appendices. The research proposed also includes 10 pictures, 15 formulas, 19 tables and 13 appendices.</p><p>In first chapter theoretical aspects of the project financial modeling will be scrutinized. Moreover the main methods of the project economic evaluation will be defined. In second chapter the author will analyze real option theory as a method of investment project attractiveness estimation in conditions of uncertainty. The third chapter is about financial modeling of the project &ldquo;Building a highly efficient wood processing factory&rdquo;. &nbsp;</p><p>The research relies mainly on quantitative methods such as calculation of the NPV, IRR, PI, DPP used in order to evaluate the effectiveness of the investment project. The majority of calculations are based on DCF method. Sensitivity analysis, scenario analysis and simulation with Monte-Carlo method will be applied in order to assess risk. Moreover the theory of real option will be applied and option value will be calculated using the Black-Scholes model. Also leveraged buyout model (LBO) will be built.&nbsp;</p><p>The research will <strong>result</strong> in financial model of the project built in MS Excel. It can be conclude that the analyzed project meets the criteria of efficiency. The risks of complete failure of the project are relatively low. It is profitable for &ldquo;Lesstroy&rdquo; company to continue the project and buy Public Limited Company &ldquo;InterProgress&rdquo;. &nbsp;</p>