Corn‐Ethanol Plant Investment: A Real Options Case Study

Abstract

The objective of this article is to describe an investment decision using net present value and real options. A case study describes the data and the corn‐ethanol industry so students can study a cooperative's decision of whether or not to invest in a new corn‐ethanol plant in 2015 Nebraska. An extensive set of information accompanies this case, including spreadsheets with data, computer software code, lesson plans for teaching real options and net present value, and an extensive teaching note.

Maize price volatility and deforestation

“…Early work includes Arrow and Fisher (1974), Williams (1991), Reed (1993), Capozza and Li (1994), Geltner et al (1996), and Dixit and Pindyck (1994). Real option models have been used in the agricultural economics literature to study planting and harvesting decisions (e.g., Du & Hennessy, 2012; Ewald et al, 2016; Song et al, 2011), investment decisions (e.g., Feil et al, 2012; Pederson & Zou, 2009; Secor & Boland, 2017), and farm‐labor migration (Önel & Goodwin, 2015). Real option approaches have also been used to model natural resource management and, most relevant to our work here, the tension between forest and agriculture.…”