ANALYSIS OF RISK AND UNCERTAINTY

ASSESSMENT OF PROJECT RISK The major features relating to the methodology followed by the Indian corporate to assess the project risk and the relative significance assigned to different risk assessment techniques are summarized below. • The respondent firms use, as...
ANALYSIS OF RISK AND UNCERTAINTY

Decision-tree Approach The Decision-tree Approach (DT) is another useful alternative for evaluating risky investment proposal. The outstanding feature of this method is that it takes into account the impact of probabilistic estimates of potential outcomes. In other...
ANALYSIS OF RISK AND UNCERTAINTY

Determination of Expected NPV TABLE (v) The probability of the Index being less than 1: For the index to be 1 or less, the NPV would have may be zero or negative. Thus, the probability would be equal to 25.46 per cent as calculated in part (iii) (a) the answer. [vfb...
ANALYSIS OF RISK AND UNCERTAINTY

Normal Probability Distribution We can make use of the normal probability distribution to further analyse the element of risk in capital budgeting. The use of the normal probability distribution is enable the decision maker to have an idea of the probability of...
ANALYSIS OF RISK AND UNCERTAINTY

Independent Cash Flows Over Time The mathematical formulation to determine the expected values of the probability distribution of NPV for any project is: The above calculations of the standard deviation and the NPV will produce significant volume of information for...
ANALYSIS OF RISK AND UNCERTAINTY

Probability Distribution Approach In the earlier part of this chapter dealing with basic risk concepts, we had introduced the use of the concept of probability for incorporating risk in evaluating capital budgeting proposals. As already observed, the probability...