Digital model of optimal investment budget formation

Abstract

The study discusses the problems associated with substantiating the optimal size of the investment budget. At present, the generally accepted approach is the one that involves a joint analysis of two schedules: of investment opportunities and of marginal cost of capital. This approach assumes that the optimal size of the investment budget lies at the intersection of these schedules. In this paper, it is shown that the classical approach does not take into account the nonlinear nature of the dependence of the return on investment portfolio on the cost of capital sources. The digital model constructed in the framework of this research of the dependence of project profitability on the cost of capital sources shows that with an increase in the cost of capital, the decrease in the internal rate of return is increasing. The classical approach does not take this factor into account, which may lead to the fact that projects with a factually negative or rather low internal rate of return are included in the investment portfolio. The study proposes for the first time a digital model for the formation of an optimal investment budget, offering instead of a graphical model of investment opportunities to use a graph of the internal rate of return of the investment portfolio as a whole, depending on the size of the budget. Joint consideration in the model of data on the internal rate of return on the investment portfolio and the marginal cost of capital allows to avoid the inclusion of inefficient projects in the portfolio. In addition, to form the investment budget, it is proposed to additionally consider information on changes in the net present value of the investment portfolio depending on the size of the budget. Using in the model data on changes in the internal rate of return and net present value of the investment portfolio as a whole on the size of the investment budget allows us to increase the validity of management decisions related to the formation of the investment portfolio.