Estimation of Long-Term Projects in Terms of Uncertainty of Inputs

One of the criteria underlying the decision concerning acceptance or rejection of a project is the internal rate of return (IRR). The project is acceptable if the discount rate applied is lower than the IRR. We focus on the project of innovative commodity production whose consumption is of interest to the government. The need for a large initial investment and the high production costs do not stimulate a sufficient demand to guarantee an adequate IRR. Therefore, such a project is subsidized. Given the ambiguity about the amount of investment, future market price and demand, only the intervals of these values can be estimated. Concurrently, any relevant reason to prefer a particular value does not exist. We consider this situation as uncertain on the input side of the evaluation process, with the IRR on the output side being consequently uncertain. A tool to answer the question of whether the system of subsidies is adequate is the fuzzy approach. The electric car production project analysis shows that this approach provides superior information, which helps the investor e.g., to assess the degree of competitiveness of a project given to the alternative yield rate.