The achievement of food security constitutes a main objective of the economic and social policy of Cuba in line with the Millennium Goals that promulgate the increase in food levels and the improvement of the quality of life of people.
Cuba is an agricultural country, 58.3% of its areas (6,400,800 hectares) according ONE, (2018)ONEI: Anuario Estadístico de Cuba 2018. Capítulo 9: Agricultura, Ganadería, Silvicultura y Pesca, ser. Edición 2019, Inst. ONEI: Oficina Nacional de Estadísticas e Información República de Cuba, La Habana, Cuba, 10 p., 2018., have suitable conditions for cultivation, however, the demand for agricultural products for food is not satisfied, requiring a significant allocation of level of financial resources for food imports.
According to data from the National Office of Statistics and Information of Cuba, ONE, (2018)ONEI: Anuario Estadístico de Cuba 2018. Capítulo 9: Agricultura, Ganadería, Silvicultura y Pesca, ser. Edición 2019, Inst. ONEI: Oficina Nacional de Estadísticas e Información República de Cuba, La Habana, Cuba, 10 p., 2018., investments in the equipment component represented an average of 25.8% of the total volume of investments made in the country in 2018 and 2019. At the end of 2019, 5% of the investments were destined to the agricultural sector. The approval and execution of investments has a direct impact on increasing production efficiency, with the consequent increase in labor productivity and saving resources. The financial and economic feasibility study of an investment project is an essential requirement in the approval of new projects.
The Production Company of Various Crops and Livestock "Rubén Martínez Villena", located in the Mayabeque province, comes from a sugar company that was extinguished at the beginning of this century, so its machinery park was relocated to other entities of its kind in the province. The aforementioned entity undertakes the realization of an investment project aimed at the acquisition of agricultural machinery to ensure the "More Food" program with the aim of promoting the increase in the production of viands, vegetables and grains.
The cycle of a project is the process by which an idea becomes technical formulations that are made and evaluated, to again conceive another idea refers Zamora (2015)ZAMORA, A.: Ciclo de Vida, [en línea], 2015, Disponible en:www.banrepcultural.org>met1>7.htm, [Consulta: 6 de enero de 2018]..
An investment project is the set of planned, executed and supervised activities that, with finite resources, aim to create a unique product or service, points out Castro (2016)CASTRO: Manual Práctico de Dirección Financiera, [en línea], La Habana, Cuba, 2016, Disponible en:http://www.books.google.com.cu..
Taking the importance of this topic, into account, this research aims to evaluate the aforementioned investment economically and financially.
The abstract logical, economic statistics and constructive calculation methods were used in the research with their main procedures:
The logical-abstract method, the analysis procedures and the synthesis for the development of the research and the calculation of the value of the financial indicators from the results obtained from the sensitivity analysis, which allows to deduce the feasibility or not of the project of investment.
From the economic statistical method, the procedures for economic comparisons and groupings and determination of average and relative magnitudes. Through its use, an estimate is made of the behavior of sales, the cost of operations and the cost of capital; and you get the net cash flow.
From the constructive calculation method, analogies and forecasting procedures were used based on what was achieved, observing the identity, for the calculation of financial indicators for both the original project and for the sensitivity analysis.
Within the elements of the investment project, the cost of the investment was calculated taking the definition given by Gitman & Zutter (2016)GITMAN, L.J.; ZUTTER, C.: Principios de Administración Financiera, Ed. Pearson-Prentice Hall, 12 th edition ed., USA, 2016, ISBN: 978-607-32-3721-5., the aforementioned authors point out that the investment costs are those that are incurred from the preparation stage to its functioning. Sometimes, in addition to the costs incurred in the initial stage, the necessary requirement of other costs is known at certain times in the useful life of the investment project, such as for increased capacity, replacement of equipment. If reinvestment expenses are required, they will be included in the confirmation of these costs.
For the calculation of the cost of Capital (CPC), there are different expressions such as those referred to by Sapag et al. (2014)SAPAG, N.; SAPAG, R.; SAPAG, J.M.: Preparación y evaluación de proyectos, Ed. McGraw-Hill/Interamericana Editores, S.A. DE C.V, 6ta edición ed., México, DF, 2014. among others, who point it out as:
Where:
: rate imposed by the bank, in %;
: tax rate, in %;
: percentages of debt in the optimal capital structure;
: cost of equity or equity, in pesos;
: percentage of equity capital in the optimal capital structure.
For the calculation of the Net Cash Flow (FNE) the expression referred by Scott, et al (2014) was taken
Where:
is the Net Cash Flow, which is expressed in pesos, like the rest of the indicators Sales, Operation Cost and Depreciation, respectively.
Sales were estimated from the productions that are expected to be commercialized according to the projections of the company and in accordance with the provisions of Resolution No. 1096/2017, Agreement 7734 of the Executive Committee of the Council of Ministers, referring to the stock prices of agricultural products Cuba: Comité Ejecutivo del Consejo de Ministros (2017)CUBA: COMITÉ EJECUTIVO DEL CONSEJO DE MINISTROS: Resolución No. 1096/2017. Precios de acopio de los productos agropecuarios. Acuerdo 7734., no. 1096/2017, Inst. Comité Ejecutivo del Consejo de Ministros, La Habana, Cuba, 2017..
To calculate the costs of operations, the Update of the cost sheets of agricultural products, from February 2016, issued by the Directorate of Accounting and Prices of the Ministry of Agriculture and Resolution No. 1038/17 of the Ministry of Agriculture was used. Finance and Prices, which regulates the procedures for the accounting work of tangible fixed assets Cuba: Ministerio de Finanzas y Precios (2017)CUBA: MINISTERIO DE FINANZAS Y PRECIOS: Resolución No.1038/17. Norma Cubana de Contabilidad No.7 «Activos Fijos Tangibles» (NCC No. 7), Inst. Ministerio de Finanzas y Precios, Sección II del Manual de Normas Cubanas de Información Financiera, La Habana, Cuba, 2017..
Hernández (2013)HERNÁNDEZ, Y.G.: Análisis de la aplicación del avalúo de Activos Fijos Tangibles en la Empresa de Comercio Santa Clara, Universidad Central «Marta Abreu» de las Villas, Trabajo de Diploma, Santa Clara, Villa Clara, 2013. refers to depreciation as the process of allocating the cost of a fixed asset to expenses in the period in which it is estimated that it will be used. Depreciation is not a valuation process whereby the cost of the asset is assigned to expenses according to appraisals made at the end of each period. Depreciation is an allocation of the cost of the asset to expenses according to its original cost.
The net present value (NPV) was calculated from the expression of Sapag et al. (2014)SAPAG, N.; SAPAG, R.; SAPAG, J.M.: Preparación y evaluación de proyectos, Ed. McGraw-Hill/Interamericana Editores, S.A. DE C.V, 6ta edición ed., México, DF, 2014.,
Where:
is the initial investment cost
useful life, in years
the discount rate or opportunity cost, in index or coefficient
is the net cash flow or cash flows in year i, in pesos
Net cash flow is calculated on estimated values for sales, costs of operations and depreciation.
To calculate the benefit-cost ratio (Rb/c) in new investment projects, the following calculation expression is used:
Where:
is the investment cost;
, net cash flow;
, interest rate.
The expression for calculating the IRR is:
Where:
is the update rate where the NPV is positive and i2 where it is negative.
and "NPVn" are the results corresponding to positive NPV at rate i1 and negative NPV at rate i2.
The unit of measure of the NPV indicator is the currency used for the calculation, in this case pesos.
To carry out the economic-financial evaluation of the investment project under analysis, the criteria of several authors that address the subject were taken into consideration and some of whom have been referred to in the previous section in relation to the methodology used for the study. Some of its fundamental criteria are conceptually detailed below.
Alonso (2016)ALONSO, Y.: Factibilidad Económica-Financiera para la reparación capital de pozos de petróleo en la EPEP de Occidente, Universidad Agraria de La Habana (UNAH), Trabajo de diploma de Licenciatura en Contabilidad y Finanzas, San José de las Lajas, Mayabeque, Cuba, 2016. describes that “… for the formulation, analysis and presentation of an investment project, it is essential to have sufficient financial resources for its execution and start-up. To estimate the financial needs of a project, an analysis supported by offers and other information from possible suppliers must be carried out in the entity's financial statements and the liquidity analysis”.
The literature is very profuse in models for calculating the cost of capital from specific sources within the project. Sapag et al. (2014)SAPAG, N.; SAPAG, R.; SAPAG, J.M.: Preparación y evaluación de proyectos, Ed. McGraw-Hill/Interamericana Editores, S.A. DE C.V, 6ta edición ed., México, DF, 2014. states: “In general terms, it can be stated that the investor will assign his available resources to the project if the expected profitability compensates the results that could be obtained if he destined those resources to another investment alternative of equal risk. Therefore, the cost of own capital has an explicit component that refers to other possible applications of the investor's funds. Thus, the implicit cost of capital is an opportunity cost concept that encompasses both the expected rates of return on other investments and the opportunity of present consumption”.
According to Castro (2016)CASTRO: Manual Práctico de Dirección Financiera, [en línea], La Habana, Cuba, 2016, Disponible en:http://www.books.google.com.cu., “The cost of capital is one of the elements that determine the value of the company (…) it is the cost of the financial resources necessary to carry out an investment. It is possible to distinguish between the cost of capital of a joint venture and the cost of capital of each of the financing components such as borrowings, shares and reserves. "
“The cash flow determines the cash inflows and outflows that the company has had or may have. It is also known as the cash entry and exit status, entry budget and exit budget (Bermudez, 2016).
Hernández (2013)HERNÁNDEZ, Y.G.: Análisis de la aplicación del avalúo de Activos Fijos Tangibles en la Empresa de Comercio Santa Clara, Universidad Central «Marta Abreu» de las Villas, Trabajo de Diploma, Santa Clara, Villa Clara, 2013. refers to depreciation as the process of allocating the cost of a fixed asset to expenses in the period in which it is estimated that it will be used. “Depreciation is not a valuation process by which the cost of the asset is assigned to expenses in accordance with appraisals made at the end of each period. Depreciation is an allocation of the cost of the asset to expenses according to its original cost”.
"The Net Present Value (NPV) or the Net Present Value (NPV) shows the net benefits generated by the project during its useful life after covering the initial investment and obtaining the required investment return" (Canales, 2015CANALES, S.R.J.: “Criterios para la toma de decisión de Inversiones”, REICE: Revista Electrónica de Investigación en Ciencias Económicas, 3(5): 101-117, 2015, ISSN: 2308-782X.).
Mete (2014)METE, M.: “La Relación Beneficio-Costo (R b/c)”, [en línea], En: Instituto de Investigación en Ciencias Económicas y Financieras Universidad La Salle - Bolivia, vol. 7, pp. 67-85, 2014, Disponible en:http://www.es.slideshare.net>marcosmete.co, [Consulta: 20 de diciembre de 2019]. considers that "The Benefit - Cost Ratio (R b / c) expresses the current value for each peso invested, it is the relationship between the benefit and the cost obtained during the project's exploitation period, which must be higher than the cost of the capital or the source of financing used in it. It is the technique of the Profitability Index or ratio ".
The benefit-cost ratio, or its inverse, the cost-benefit ratio can be calculated in this study.
“The cost-benefit ratio method for capital budgeting does not differ much from the net present value method. The only difference is that the C / B ratio calculates the present value of the relative return by the amount that is invested, while the present value system gives the difference between the present value of the cash inflows and the net investment”. They point out Gitman & Zutter (2016)GITMAN, L.J.; ZUTTER, C.: Principios de Administración Financiera, Ed. Pearson-Prentice Hall, 12 th edition ed., USA, 2016, ISBN: 978-607-32-3721-5..
“The internal rate of return or yield (IRR) represents the internal profitability of the project and is the discount or discount rate that makes zero the net present value. It expresses how much is earned on average annually, per freely convertible currency invested” (Federico, 2018FEDERICO, L.: ¿Qué es un proyecto de inversión?, [en línea], 2018, Disponible en:http://www.econlink.com.ar ).
“The ordinary payback period is the period in which the company recovers the investment made in the project. This method is one of the most used to evaluate and measure the liquidity of an investment project”. Refers Trujillo (2016)TRUJILLO, E.: Finanza, [en línea], WordPress, 2016, Disponible en:http://www.es.slideshare.net>eveliatrujillo.com, [Consulta: 20 de diciembre de 2019]..
“The discounted payback period (PRD) provides the moment in which the investment recovers the capital invested in it, recognizes the value of money over time. The appropriate choice for the application of a specific criterion, indicates Canales (2015)CANALES, S.R.J.: “Criterios para la toma de decisión de Inversiones”, REICE: Revista Electrónica de Investigación en Ciencias Económicas, 3(5): 101-117, 2015, ISSN: 2308-782X., depends on the circumstances in which the decision is made and the practices followed by the company”.
Based on the methods and techniques of economic science and with the criteria of the aforementioned authors, the basic indicators established by the consulted literature to evaluate investment were calculated, taking into account the parameters that financial institutions regulate for Cuban agriculture and credit of the country.
It was taken into consideration that the Credit and Commerce Bank imposes a rate of 7% and the taxes represent payments to the ONAT, therefore, it was calculated on the basis of 35% of profits and the cost of own capital is 6.5%.
Sales were estimated for the potato, sweet potato, cassava, tomato, pepper, pumpkin, cucumber, melon, cabbage, corn, common bean and sorghum crops for a period of ten years, taking 2018 as year 0 of the project. The estimate resulted in rising sales levels that vary between $ 6,985,189.47 CUP in the first year and $ 8,447,272.55 CUP in year ten (2027).
The operating costs were calculated based on the cost sheets approved by the entity's governing body, the Ministry of Agriculture.
To estimate sales income and operating costs, we worked with the projection of areas and yields prepared by the company for the period. The estimated costs range from $ 7,275,419.74 CUP, in the highest periods, (2020-2021-2022) to $ 4,492,969.75 CUP in year ten (2027), achieving a decrease.
In calculating depreciation, the cost of assets and salvage value were taken as a basis Cuba: Ministerio de Finanzas y Precios (2017)CUBA: MINISTERIO DE FINANZAS Y PRECIOS: Resolución No.1038/17. Norma Cubana de Contabilidad No.7 «Activos Fijos Tangibles» (NCC No. 7), Inst. Ministerio de Finanzas y Precios, Sección II del Manual de Normas Cubanas de Información Financiera, La Habana, Cuba, 2017., calculating the depreciation on the estimated machine hours to work in each year of its useful life, from this In this way, we proceeded for each type of equipment or implement, estimating a depreciation per machine hour that ranges between $ 0.10 / hour in the case of the plow and $ 2.49 / hour in the case of the integral sprayer, for example, the rest of the equipment and implements as a tractor, harrow, combine, seeder-fertilizer and grain sorting machine, it ranges between $ 0.86 / hour and $ 1.13 / hour respectively.
In the same way, the working hours of the equipment and implements for the entire period were estimated, allowing to project the total expense for depreciation for each crop.
With this information, we proceeded to calculate the net cash flow, considering the concepts of income, cost of operations, profit before and after tax and depreciation, and the final result begins with $ 1,430,960.14 in 2018 until reaching $ 2,573 242.42 in the year 2027, which shows an estimated increase in the period of the net cash flow of 79.8%.
Subsequently, the financial economic indicators were calculated to evaluate the investment project: Net present value (NPV), Benefit / Cost Ratio (Rb/c), Ordinary Recovery Period (PRO), Discounted Recovery Period (PRD) and Internal Rate of Return (IRR). To calculate these indicators, the criteria of the previously consulted authors such as Mete (2014)METE, M.: “La Relación Beneficio-Costo (R b/c)”, [en línea], En: Instituto de Investigación en Ciencias Económicas y Financieras Universidad La Salle - Bolivia, vol. 7, pp. 67-85, 2014, Disponible en:http://www.es.slideshare.net>marcosmete.co, [Consulta: 20 de diciembre de 2019].; Canales (2015)CANALES, S.R.J.: “Criterios para la toma de decisión de Inversiones”, REICE: Revista Electrónica de Investigación en Ciencias Económicas, 3(5): 101-117, 2015, ISSN: 2308-782X. and Trujillo (2016)TRUJILLO, E.: Finanza, [en línea], WordPress, 2016, Disponible en:http://www.es.slideshare.net>eveliatrujillo.com, [Consulta: 20 de diciembre de 2019]. were used.
The result obtained for the projected period is as follows:
Source: self-made.
The Internal Rate of Return was estimated for a NPV that ranges between 20% and 90%, the result obtained being the following:
Source: self-made.
A summary of the results obtained in the calculation of the previous indicators is provided below:
The Net Present Value, NPV> 0, which indicates that in the ten years of useful life it is expected to obtain profits, the calculation yields a value of $ 10 145 644.98, this condition indicates that the project is favorable and is accepted.
For each peso of investment, the company recovers $ 42.66, a highly favorable result.
The investment is recovered in the first year, since the Net Cash Flow of the first year is greater than its cost, in the same way, the investment is recovered in the first year, since the Present Value of the first year is greater than the cost of the same, therefore, the investment is recovered in the first ordinary and discounted year.
Finally, in order to achieve greater precision for decision-making according to the usual changes that usually occur in the time variable, a sensitivity analysis was carried out, estimating a probable decrease in sales of up to one 20% and an increase in costs by 20%.
When commenting on the sensitivity analysis Gutiérrez (2014)GUTIÉRREZ: Proyectos de Inversión, [en línea], 2014, Disponible en:http://www.emprendedoresempresas.wordpress.com. comments, the sensitivity analysis is a technique that allows to immediately visualize the economic advantages and disadvantages of an investment project. It is considered as a first approach to the study of risk investments, since it allows identifying those elements that are more sensitive to a variation. "
Expresses Turmero (2014)TURMERO, I.: Análisis del punto de equilibrio y análisis de sensibilidad formalizado, [en línea], 2014, Disponible en:http://www.googleacadémico.com/trabajos102/analisis-del-punto-equilibrio-analisis-sensibilidad-formalizado/analisis-del-punto-equilibrio-analisis-sensibilidad-formalizado.shtm., when several parameters are studied, a sensitivity analysis would be quite complex. This can be done using one parameter at a time with a spreadsheet or with manual calculations. When conducting a full sensitivity analysis, this general procedure is followed, the steps of which are:
Determine which parameter of interest could vary from the most probable estimated value.
Select the probable range of variation and its increase for each parameter.
Choose the measure of value.
Calculate the results for each parameter using the measure of value as the basis.
To better interpret sensitivity, the parameter versus the value measure is graphically illustrated.
For his part, Gava (2016)GAVA: Financiamiento, [en línea], 2016, Disponible en: http://www.firtbankpr.com. states, sensitivity analysis is a financial term widely used in companies to make investment decisions. It consists of calculating the new cash flows and the new NPV, we have to compare the old FNE and old NPV with the new FNE and new NPV; and it will give us a value that when multiplying it by one hundred we will obtain the percentage of change.
The result of the sensitivity analysis carried out for the project in question allows us to conclude that, although this investment is recovered in the first year, it bears a 10% increase in costs, not being an increase in costs of 20%.
The economic-financial evaluation of the investment project for the acquisition of agricultural machinery allows to conclude the following:
The project is viable according to the result of the main economic-financial indicators that evaluate the feasibility of said investment, yielding an increasing estimate of profit levels in the ten-year useful life of the project and a recovery of the investment in the first year.
The sensitivity analysis carried out allows estimating that the investment supports an increase in costs by 10%, but not by 20%, an aspect to be taken into account when making decisions regarding the behavior of this indicator.