The estimation of the discount rate is decisive for a reliable economic valuation. The discount rate has to be adjusted for the risks related to the company, the sector which the company has its market, and the risks related to the investment project. We present a proposal to incorporate the risk premium to the discount rate. The novelty of the methodology is that difference risk groups according to activity as a factor to adjust the cost of capital to companies. The study applies the methodology to the Agro-Industrial Complex (AIC) in Spain. The AIC is formed by industries that add value to farming production. This sector's economic success demands financial management techniques that assess risk. The conventional method responds neither to the heterogeneity of the economic activities that make up the AIC, nor to differentiating risk by groups. The proposed methodology distinguishes activity groups in accordance with the NACE (National Code of Economic Activities) and uses net profitability variability to distinguish the risk in each group. Our results demonstrate the various levels of risk per group. The results show that among all the groups that form the AIC there are wide differences between levels of risk; thus, the risk neutral groups present risk levels on the order of 150 times lower than the groups extreme risk levels.Additional key words: discount rate; cash flow discount; capital asset pricing model agro-industry.
Although the discounted cash-flow is still considered to be the fundamental value of an asset, there are few studies which assess its ability to explain movements in the market prices of agricultural assets. The aim of this work was to compare the evolution of market prices of Farmland to the series of values that would be obtained by applying the income approach method using official Spanish statistical data as well as two proposed methods: on the similarity of the dynamical structure of prices and returns time series, on the one hand; and on the regression between both series, on the other. The results obtained are not consistent with the hypothesis that the values obtained by the income approach method can explain the movements observed in market prices. Only in certain isolated cases, such as the Autonomous Region of Aragón. Therefore, other causes should be considered both at national and regional level.Additional key words: DCF model; fundamental value; income approach; market price. Resumen Valor de la tierra y rendimiento de las explotaciones agrarias: un análisis por comunidades autónomasAunque el descuento de flujos de caja sigue siendo considerado el valor de un activo, son escasos los estudios destinados a contrastar su capacidad de explicar los movimientos en los precios de mercado de los activos agrarios. El objetivo de este trabajo es el de comparar la evolución de la serie de precios de mercado de la tierra de uso agrario con la serie de valores que se obtendría de la aplicación del método analítico utilizando datos procedentes de las estadísticas oficiales españolas a través de dos métodos propuestos: uno sobre la similitud de la estructura dinámica de las series de precios y rendimientos, y otro sobre las regresiones entre ambas series. Los resultados obtenidos no son congruentes con la hipótesis de que los valores obtenidos con el método analítico puedan explicar los movimientos observados en los precios de mercado. Solo en casos aislados, como en la Comunidad de Autónoma de Aragón, se podría admitir que la evolución de los rendimientos de las explotaciones explicaría la evolución de los precios de la tierra. Por ello, tanto a nivel nacional, como en la mayoría de las comunicadas autónomas otras causas deberían ser consideradas.Palabras clave adicionales: método analítico; modelo de descuento de los flujos de caja; precio de mercado; valor fundamental.
Quantifying the effect of location on land values can be done by designing a location factor which considers the most relevant aspects that may influence this value; e.g., proximity to large cities, the population living around the parcel or land to be valued, the distance from it to markets or logistic centers, or the existence of places of environmental or landscape interest. Considering these variables can be complicated by having to process large amounts of distinct data (distances, no. of inhabitants or population size, protected areas, etc.), which have to be processed and interpreted to be able to define the factor that summarizes them, and can affect the land value from income, such as productive assets, to correct its value. The main proposal put forward in this research is to study the various location aspects that affect land values, and the possibilities that Geographic Information Systems (GIS) offer to design with free software tools that allow simple calculations of a location correction factor and, consequently, land values. Calculations were made for all the rural cadastral parcels (2.3 million) in the Valencian Region. Results can be integrated into a new online GIS portal and make these available to users in soil valuation studies.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.