Download - Capital Bugeting Risk I
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UNCERTAINTY AND RISK IN
CAPITAL BUDGETING Analyzing Project Ri!
"ea#ring Project Ri!
Ri!$A%j#te% In&et'ent Analye
Ri! A%j#t'ent Practice
Co''on Error in Project Ri! Ae'ent
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Analyzing Project Ri!
Project$S(eci)ic Ri! * Ri! aociate% +it,Project- i'(act o) ca,$)lo+ .Re&en#e-
/(erating "argin- 0or!ing Ca(1- /t,er Ri!.Location- 2#ality o) Peronnel134 Project Ri! Di&eri)ication* Selection o) large n#'5er
o) (roject eli'inate t,e error o) eti'ation3
Co'(etiti&e Ri!* T,e re&en#e are a))ecte%(oiti&ely or negati&ely 5y t,e action o)co'(etitor- .(rice re%#ction- ne+ (ro%#ctintro%#ction1
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Analyzing Project Ri!
In%#try $S(eci)ic Ri!* 6aria5ility in Ca, )lo+ %#e to tec,nologyri! - co''o%ity ri! an% legal ri!4 Tec,nology Ri!
4 Legal Ri!
4 Co''o%ity Ri!
International Ri!* /&erea Project- E7c,ange rate 'o&e'ent-(olitical ri!
4 Di&eri)ication (oi5le 5y ta!ing (roject in %i))erent co#ntrie +it,#ncorrelate% c#rrencie 'o&e'ent3
4 Deri&ati&e can ,el(
"ar!et Ri!* "acro Econo'ic )actor- Interet rate 'o&e'ent-in)lation-4 Non Di&eri)ia5le Ri!
4 Deri&ati&e Pro%#ct can ,el(
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S#''ary
Risk Example Firm mitigatesby
Investormitigates by
Private firm
Project Ri! Eti'ation"ita!e- Erroro) (ro%#ct -
location
Ta!e a largen#'5er o)(roject
8ol%%i&eri)ia5le(ort)olio
S,o#l% not'atter i) )ir'ta!e large
n#'5er o)(roject
Co'(etiti&e Une7(ecte%'o&e o)co'(etitor
Ac9#iringco'(etitor
8ol%co'(etitor
0ill 'atter
In%#try C,ange t,at
e))ect allin%#try
Di&eri)y in
ot,er ector
8ol% %i&eri)ie%
(ort)olio
0ill 'atter
International C#rrency ri! In&et in'#lti(leco#ntrie
8ol% acroco#ntrie
0ill 'atter
"ar!et Ri! Interet rate- Non%i&eri)ia5le
Non%i&eri)ia5le
0ill "atter
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8o+ %o +e %eci%e t,e )ir'
clai)ication 5ae% on Ri!: G#e t,e category o) 'arginal in&etor
% InstitutionsHolding
% Held byInsiders
MarginalInvestor
Category
8ig, 8ig, Intit#tionalIn&etor
Di&eri)ie%
Lo+ 8ig, Ini%er./+ner1
Un%i&eri)ie%
Lo+ 8ig, 0ealt,yIn&etor
Di&eri)ie%
Lo+ Lo+ S'all In&etor Retricte%Di&eri)ication
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"ea#ring Project Ri!
"ea#ring "ar!et Ri!
4I) (roject ri! i contant acro t,e )ir'
4I) (roject ri! &arie acro t,e )ir'
Botto' #( Beta .Calc#late #ing t,e co'(ara5le
)ir' .coni%er o(erating le&erage1
Acco#nting Beta
;#n%a'ental Beta
.B?3@>Co?3DE?3>g$3TA1
0,ere Co
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Ri!$A%j#te% In&et'ent Analye
A%j#ting Dico#nt Rate4 A%j#ting Cot o) E9#ity
Project cot o) e9#ity
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Ri! A%j#t'ent Practice
Ki' Cric! an% Ki' .F=1 S#r&ey o) H@)ir'3
4Ri! A%j#t'ent Tec,ni9#e No A%j#t'ent i 'a%e .F1
A%j#t'ent i 'a%e #5jecti&ely .1
Certainty E9#i&alent .J1
RADR .@1 S,ortening (ay5ac! .J1
/t,er .>1
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In&et'ent Analyi .In)lation1
F?No'inal R
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Co''on Error in Project Ri!
Ae'ent ;ail#re to acco#nt )or ri!
Co#nting t,e a'e ri! 'ore t,an once
A((lying )ir' ri! (ro)ile to (roject
Coni%ering %i&eri)ia5le ri! in (roject
analyi3