Return expectations and perceived risks in the establishment of a business unit of cashew nut processing in Rio Grande do Norte State, Brazil

Abstract

This study aims to identify the expected return and the perceived risks in the establishment of a processing unit and commercialization of cashew almond nuts with capacity to process up to 10,800 t year-1, in the city of Apodi-RN, Brazil. This study is classified as applied regarding its nature; descriptive and explanatory regarding its objective and case study regarding the strategy of problem approach. For conducting it, data were collected about initial investment, expected demand, production costs and selling price. Based on this information and by using the multi-index methodology, were estimated the returns indicators and the risks perception of the of this business unit. The main advantage of this methodology is to use the almost risk-free rate to discount the projected cash flow; to measure the project risks in a scale from zero (very low risk) to one (high risk); to discuss each one of the five type of risks (decision, payback, operational, management and business risks) and by using, a perceptual map, to confront the expected return with the perceived risks to accept, or not, the project under analysis. The results points out to an additional return on investment (ROIA) of about 13.7% per year above the Almost Risk Free Rate (ARFR = 7%). This return is considered medium/high for Brazilian standards. The risks perception, except the operational risk, pointed out to be compatible with the expected return. In order to check out the indicators robustness, a variation of ±15.0% (triangular distribution) was inserted in the main parameters (sales, price and variable costs) over the most likely scenario. The results obtained by using the Monte Carlo method and the Crystal Ball software point to p (VPL≤0) ≈ 0 corroborating with the decision to invest in this agribusiness. This study highlights as its main contribution the multidimensional analysis of the risks linked to investment in agriculture.