TAILIEUCHUNG - Lecture Fundamentals of financial management (13/e) - Chapter 14: Risk and managerial (real) options in capital budgeting

After studying chapter 14, you should be able to: Define the “riskiness” of a capital investment project; understand how cash-flow riskiness for a particular period is measured, including the concepts of expected value, standard deviation, and coefficient of variation; describe methods for assessing total project risk, including a probability approach and a simulation approach. | Chapter 14 Risk and Managerial Options in Capital Budgeting © 2001 Prentice-Hall, Inc. Fundamentals of Financial Management, 11/e Created by: Gregory A. Kuhlemeyer, . Carroll College, Waukesha, WI Risk and Managerial Options in Capital Budgeting The Problem of Project Risk Total Project Risk Contribution to Total Firm Risk: Firm-Portfolio Approach Managerial Options An Illustration of Total Risk (Discrete Distribution) ANNUAL CASH FLOWS: YEAR 1 PROPOSAL A State Probability Cash Flow Deep Recession .05 $ -3,000 Mild Recession .25 1,000 Normal .40 5,000 Minor Boom .25 9,000 Major Boom .05 13,000 Probability Distribution of Year 1 Cash Flows .40 .05 .25 Probability -3,000 1,000 5,000 9,000 13,000 Cash Flow ($) Proposal A CF1 P1 (CF1)(P1) $ -3,000 .05 $ -150 1,000 .25 250 5,000 .40 2,000 9,000 .25 2,250 13,000 .05 650 S= CF1=$5,000 Expected Value of Year 1 Cash Flows (Proposal A) (CF1)(P1) (CF1 - CF1)2(P1) $ -150 ( -3,000 - 5,000)2 (.05) 250 ( 1,000 - 5,000)2 (.25) 2,000 ( 5,000 - 5,000)2 (.40) 2,250 ( 9,000 - 5,000)2 (.25) 650 (13,000 - 5,000)2 (.05) $5,000 Variance of Year 1 Cash Flows (Proposal A) Variance of Year 1 Cash Flows (Proposal A) (CF1)(P1) (CF1 - CF1)2*(P1) $ -150 3,200,000 250 4,000,000 2,000 0 2,250 4,000,000 650 3,200,000 $5,000 14,400,000 Summary of Proposal A The standard deviation = SQRT (14,400,000) = $3,795 The expected cash flow = $5,000 An Illustration of Total Risk (Discrete Distribution) ANNUAL CASH FLOWS: YEAR 1 PROPOSAL B State Probability Cash Flow Deep Recession .05 $ -1,000 Mild Recession .25 2,000 Normal .40 5,000 Minor Boom .25 8,000 Major Boom .05 11,000 Probability Distribution of Year 1 Cash Flows .40 .05 .25 Probability -3,000 1,000 5,000 9,000 13,000 Cash Flow ($) Proposal B Expected Value of Year 1 Cash Flows (Proposal B) CF1 P1 (CF1)(P1) $ -1,000 .05 $ -50 2,000 .25 500 5,000 .40 2,000 8,000 .25 2,000 11,000 .05 550 S= CF1=$5,000 (CF1)(P1) (CF1 - CF1)2(P1) $ -50 ( -1,000 - 5,000)2 (.05) 500 ( 2,000 - 5,000)2 (.25) .

• Tài chính doanh nghiệp
• Financial management
• Fundamentals of financial management
• Financial statement analysis
• Capital budgeting
• Project risk
• Managerial options
• Financial statement
• International trade transactions
• International financial management
• Quản lý tài chính
• Multinational financial management
• Exchange rates
• Financial environments
• Overview of Financial Management and the Financial Environment
• The financial environment
• Forms of business organization
• Determinants of stock pricing
• Financial instruments
• Practical financial management
• Financial background
• Financial statements
• Financial planning
• Financial system
• Financial ratio
• IT financial management
• Setting the scene
• IT financial management maturity
• Parameters influencing IT financial management
• Costs of IT financial management
• More quantifiable benefits
• Overview of roles
• Hospitality financial management
• Hospitality industry management
• Analysis of financial reports
• Analyzing financial statements
• Management decision making
• Foundations of financial management
• Review of accounting
• Financial analysis
• Financial forecasting
• The financing decision
• Financial leverage
• Current asset management
• Paper F7
• Revision kit 2016
• Management Financial
• Financial Management Exam Review
• Review of Financial Management
• Study text 2016
• Lecture Multinational financial management
• International financial reporting standards
• Foreign exchange risk management
• Financing decisions
• Investment decisions
• Role of management
• International cash management
• Cash flow analysis
• Centralized cash management
• Intermediate financial management
• Financial options
• Corporate valuation
• Corporate governance
• Financial markets
• Cash flow
• Analysis of financial statements
• Ratio analysis
• Interest rates
• Financial institutions
• Forecasting sales
• Business environment
• Limited liability company
• Common size analysis
• Statement analysis
• Break even analysis
• Break even point