《MPAcc财会专业英语》Chapter28.pdfVIP

Chapter 28 (P581-594) Project appraisal and risk Topic list (P581) • 1 What is risk and why does it arise? • 2 Sensitivity analysis. Certainty-equivalents • 3 Probability analysis • 4 Simulation modes • 5 Ways of reducing risk Introduction (P581) • Risk • Capital rationing and leasing Study guide (P582) Section 16- Project appraisal allowing for risk • Exam guide (P582) 1 What is risk and why does it arise? (P582) • (1) Risk can be applied to a situation where there are several possible outcomes and, on the basis of past relevant experience, probabilities can be assigned to the various outcomes that could prevail. • (2) Uncertainty can be applied to a situation where are several possible outcomes but there is little past relevant experience to enable the probability of the possible out comes to be predicted. • (3) There are a wide range of techniques for incorporating risk into project appraisal. 2 Sensitivity analysis. Certainty-equivalents(P583) • Sensitivity analysis assesses how responsive the project’s NPV is to changes in the variables used to calculate that NPV. One particular approach to sensitivity analysis, the certainty-equivalent approach, involves the conversion of the expected cash flows of the project to riskless equivalent amounts. • Calculate the project’s NPV under alternative assumptions. • 2.1 Example: Sensitivity analysis(P584) • 2.2 Weaknesses of this approach to sensitivity analysis (P586) • 2.3 The certainty-equivalent approach(P587) • 2.4 Example: Certainty-equivalent approach(P587) 3 Probability analysis (P587) • A probability analysis of expected cash flows can often ve estimated and used both to calculate an expected NPV and to measure risk. The standard deviation of the NPV can be calculated to assess risk when the construction of probability distribut