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Risk Analysis in Capital Budgeting
SUBJECT : Financial Management
PUBLISHED ON : 16/09/13
NUMBER OF PAGES : ( 26 Pages)
PRICE : Rs 19.5

The success of any business depends on the manner in which it deals with the uncertanity and risks. In the previous units we have assumed that the acceptance of any investment proposal would not alter the business risk complexion of the firm. The supplier of capital will not change their perception - was the assumption. That is why we use a single required rate of return. But different investment projects have different degrees of risks. W.C.F. Hartley asserts that a management must learn to live with,uncertainity although it must also attempt to put a size to it. Futurily, uncertainly and risk have to be given their due consideration in all capital budgeting decisions. Futurily refers to the timing of the cash flow and implies willingness to forego the present use of funds for future benefits. The stream of earnings may not flow as planned. Uncertainly means the absence of a perfect foresight about future events. It is elusive and a non measurable concept characterized by incomplete information about alternative courses of action. It prevails when an experiment is not replaceable. In reality, it cannot be defined in a clear and unequivocal manner.

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