Discuss the following statement: “A project may not be very riskyin spite of its high sensitivity to certain variables.”

Q: Is the net-investment test the only way to accurately predict projectborrowing?

A: Net investment refers to the total amount of money that a company invests in capital assets which is…

Q: Are you agree with the phrase (sentence): "In the following case, A risk aversion person will not…

A: A person is said to be a risk averse person, when he prefers lower returns with known risk in…

Q: How does the higher project risk reflect a higher anticipated variability in a project's NPW?

A: The Net Present Value (NPV) and the risk are unequivocally related. With a wrong hazard appraisal,…

Q: Why do you think CFOs tend to look at strategic concerns before they look at the NPV of a project?…

A: Net present value (NPV) is used by analysts and investors to evaluate the profitability of a project…

Q: What are the sources of risk associated with project development?

A: Variations in returns of an investment from its expected returns are called risk. The risk of an…

Q: How does the Broader Diversification Reduce Risk?

A: Portfolio is a pool of different investments/assets. Investors can categorize the risks in two…

Q: Which of the following contributes positively to the value of a real option to delay investment?…

A: Real option:A real option is a selection made open to a firm's managers on prospects for business…

Q: Are you agree with the phrase (sentence): "In the following case, person who prefer project B to…

A: ENPV of Project A is 100 ENPV of project B is 120 Standard deviation of Project A is 15  Standard…

Q: Are you agree with the phrase(sentence): "In the following case. a risk aversion person will not…

A: In the above question we are given ENPV which means expected net present value from a project and…

Q: We have seen that market timing has tremendous potential value. Would it therefore be wise to shift…

A: Securities selection is the process where financial securities are chosen and included in the…

Q: What factors verify that the project is marginally acceptable?

A: Capital budgeting decisions are generally taken for long-term purposes that are irrevocable.…

Q: Many times, project decision makers do not rely solely on financialhurdles, such as return on…

A: Intangible factors are those factors which can not be seen touched or felt. These factors are really…

Q: A project with a negative NPV should be rejected. O True O False

A: Net present value  = present value of future cash inflows discounted at desired rate of return -…

Q: Explain in details the differences between the two typical analyses - Sensitivyty Analysis and…

A: Both Methods, Sensitivity Analysis and Scenario Analysis help in decision making.

Q: Should companies completely avoid high-risk projects? Explain.

A: A huge-risk venture is one that has either a tall rate possibility of capital misfortune or…

Q: The board of directors of AMSB are confused between IRR and NPV. Briefly discuss the Internal Rate…

A: The internal rate of return method is a capital budgeting method which helps in finding out the rate…

Q: How can break-even analysis be helpful in evaluating project risk

A: Break even analysis helps us in determining that level of sales at which the company is at a point…

Q: Vhich of the following is FALSE regarding scenario and sensitivity analysis? Scenario analysis…

A: Scenario analysis is the prediction of the future value of the investment based on the possible…

Q: Would you expect an abandonment option to increase or decrease a project’sexpected NPV and risk (as…

A: Net present value (NPV) is the contrast between the present value of money inflows over some…

Q: Why is the net-investment test the only way to accurately predict projectborrowing? Explain with an…

A: Definition: Net- investment measures the company's assets and investment like property, software,…

Q: What do we mean by fundamental risk, and why may such risk allow behavioral biases to persist for…

A: Answer: Meaning: Fundamental risk is nothing but the loss arising out of situation which affects a…

Q: How can diversification reduce risks? Give examples from the rea world

A: Diversification is the process of managing risk which mixes the individual investments in a…

Q: How should firms evaluate projects with different risks?

A: Project evaluation is carried out by organization to know if a particular project is suitable for…

Q: Compute the expected net present value and comment on the acceptability of the project considering…

A: We will use the concept of time value of money here. As per the concept of time value of money the…

Q: 1- Please name the goals of models. 2- Please define risky project. 3- Please name two Criteria for…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub parts for…

Q: What does a project’s stand-alone risk reflect?

A: Stand alone risks are risks that are associated with a particular asset or a project. Companies when…

Q: What are some possible reasons that a project might have a high NPV?

A: The question is based on the concept of capital budgeting techniques. The Net present value (NPV) is…

Q: What are the methods of describing Project Risk?

A: The project risk is an unpredictable occurrence or situation that has an effect on at least one…

Q: Do NPV and IRR always yield the same conclusion (accept or reject a project)? If not, when do they…

A: Net Present Value is the difference between present value of cash inflows and present value of cash…

Q: The project with the highest IRR may not be the preferred alternative. To illustrate the flaws of…

A: Internal Rate of Return (IRR) is that discounting rate at which Net Present Value of the project is…

Q: How can we determine whether the project under consideration is of normal risk?

A: Introduction: Risk is nothing but the variation in real returns obtained as opposed to expected…

Q: Why might recognizing the existence of a real option raise, but not lower, a project’sNPV as found…

A: Real Options are rights which enable the  management to take  decisions  regarding business…

Q: Which of the following is FALSE regarding scenario analysis? Scenario analysis ignores…

A: Financial analysis is the process of determining the economic and financial attractiveness of a…

Q: Illustrate Investment Decision for a Nonsimple Project?

A: Investments: Companies invest in stocks and bonds of other companies or governmental entity to…

Q: Should companies completely avoid high-risk projects?

A: When we talk about risks involved in a project, then that risk can be of many types. Risks related…

Q: Are you agree with the phrase (sentence): "In the following case, a risky person may prefer project…

A: formula  Expected NPV  = Net Present Value × Probability  Standard deviation is a measure of risk.…

Q: It is possible to eliminate all risk by diversification? Explain your answer

A: Diversification is a technique used to reduce risk by investing in variety of assets. It is a risk…

Q: What are the three types of risk to which projects are exposed?Which type of risk is theoretically…

A: Types of risks associated with the projects are: Budget Risk Time risk Performance Risk Budget…

Q: If a firm can structure a project such that expenditures can be madein stages rather than all at the…

A: When expenditure of any project are made in different stages rather than at the beginning then the…

Q: If a firm cannot measure a potential project’s risk with precision, should it abandonthe project?…

A: As per common dictionary, risk means chances of loss. There are two types of risk: Known Risks  and…

Q: If the initial cost of an investment project is not totally sunk (the project is not totally…

A: given information sunk cost is irreversible cost, the explanation starts from the step 2

Q: What is a feasibility study?

A: Feasibility study is a scientific program. Venture achievement proportion  is decided by Project…

Q: Illustrate the main factors of Project Risk?

A: The project risk is defined as the uncertain event or condition that occurs mainly on positive or…

Q: Is it easier to measure the stand-alone, within-firm, or beta risk for projects such as anew…

A: Pure play technique can be used to compute project beta. In this technique, beta of companies having…

Q: Below are some statements about risk and investment appraisal. Which one is incorrect? A.…

A: risk increase with the length of a project.

Q: _______________ the more sensitive the decision to the particular parameter being considered, i.e.…

A: Answer  The lower the sensitivity margin, the more sensitive the decision tothe particular parameter…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.