Using the WACC methodology to improve the assessment of projects in the french farming industry. Empirical evidences from farm's results of Isère

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Title : Using the WACC Methodology to Improve the

Assessment of Projects in the French Farming

Industry. Empirical Evidences from Farm's Results

of Isère

Program: MBA - PT 6 - Grenoble (2009 - 2012)

Academic Year: 2011-2012

Dissertation / Project / Internship Report: International Management Project 2011-2012 Student Name: Bibard Anaël

School Tutor / Evaluator Name: Lominadze Anton

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Summary: The Purpose of this Thesis is to calculate the cost of capital for a typical farm in Isère. This cost of capital is use as an actualization rate to estimate the NPV of projects or the value of a farm based on this profitability.

Keywords: https://library.grenoble-em.com/Thesaurus/Thesaurus.html CORPORATE FINANCE - INVESTMENT

COMPANY - AGRICULTURAL COMPANY

ACCOUNTING - EVALUATION OF A COMPANY

FRENCH REGION - RHONE ALPES

MBA PT 6 - Grenoble Graduate School of Business

Using the WACC Methodology to

Improve the Assessment of Projects

in the French Farming Industry

Empirical Evidences from Farm's Results of

Isère

Anaël BIBARD
30/09/2012

Final Management Project Tutor: Anton Lominadze

Table of Content

Abstract 6

Abbreviations 7

Table of Illustrations 8

Introduction 11

1 Significance of the Research 12

1.1 The Farming Business in France 13

1.2 The Profitability Heavily Relies on Subsidies, Not on Investment Decision 14

1.3 A New Approach to Find 17

2 Literature Review 20

2.1 Risk 20

2.1.1 Risk in Agriculture 20

2.1.2 Risk Premium 20

2.2 The WACC Theory 25

2.2.1 The Importance of the WACC Theory. 25

2.2.2 The Betas for Micro-Capitalizations 25

2.3 Discount Rates and the CAPM Used in Agriculture 26

3 Research Methodology 28

3.1 Survey Construction 28

3.1.1 Questionnaire 28

3.1.2 Results Analysis 28

3.2 Historical Analysis of the Results of Farms in Isère 28

3.2.1 Data Collection 28

3.2.2 Data Processing 30

3.2.3 Research Questions 31

3.2.4 Data Analysis 31

3.3 Bond Yield Plus Risk Premium Model 33

3.3.1 Risk-Free Rate 33

3.3.2 Beta and Risk premium 33

3.4 WACC Estimation 34

4 Data Analysis 36

4.1 Results of the Survey 36

4.2 Calculation of the Historical Results Using the Data from CERFRANCE Isère 38

4.2.1 Normality of the Datasets 38

4.2.2 ROE 39

4.2.3 ROA 44

4.3 Calculation of the Capitalization Rate Using Bond Yields Plus Risk Premium 49

4.4 Approach of the WACC for Farming in Isère 50

4.4.1 Calculation of the Betas 50

4.4.2 Calculation of the WACC for the Different Specialization 52

5 Discussion 55

5.1 Survey Results 55

5.2 ROE and ROA Analysis the Farms of Isère 55

5.3 Capitalization Using the Bond Yield Plus Risk Premium 56

5.4 The WACC Methodology 56

6 Utilization of These Results 58

6.1 Managerial Implications 58

6.2 Agricultural Policies Implications 59

7 Limitations and Further Research Implications 61

7.1 Survey Construction 61

7.2 ROE and ROA Analysis 61

7.3 Bond Yield Plus risk Premium Model 61

7.4 The WACC Methodology 62

7.5 Further Research Implications 62

Conclusion 63

Bibliography 64

Appendices 70