3 edition of General framework for the evaluation of capital projects under uncertainty. found in the catalog.
|Statement||UMIST. Department ofManagement Sciences|
|Publishers||UMIST. Department ofManagement Sciences|
|The Physical Object|
|Pagination||xvi, 109 p. :|
|Number of Pages||84|
|2||Occasional papers / University of Manchester. Institute of Science and Technology. Department of Management Sciences -- No.8103|
nodata File Size: 1MB.
Risk Adjusted Discount Rate RADR Risk Adjusted Discount Rate is based on the same logic as the net present value method.
the rate reflecting the time value of money. This can be measured through standard deviation of the NPV figures. deviation of NPV of all projects? deviation is given by the formula:. It is estimated on the basis of judgment and intention on the part of management, which in turn are subject to risk attitude of management. Decision tree is a graphic display of relationship between a present decision and possible future events, future decisions and their consequence.
The logic behind this approach is that the developments during the period under Consideration might render the gains beyond terminal date of no consequence. This technique is simple and easy to handle in practice. Of these three, project C will be preferred, for its payback period is the shortest.
The study of Managerial Economics begins with developing awareness of the environment within which managerial decisions are made. Uncertainty is total lack of ability to pinpoint expected return.
Therefore only one state of the environment is possible. Elements of Decision Theory Managerial Economics focuses attention on the development of tools for finding out an optimal or best solution for the specified objectives in business.
Outcomes may be certain or uncertain.
Uncertainty is total lack of ability to pinpoint expected return.
The discount rates can be adjusted for the varying degrees of risk in different years, simply by increasing or decreasing the risk factor d in calculating the risk adjusted discount rate.
In the case of NPV future cash flows should be discounted using Risk Adjusted Discount Rate and then NPV may be ascertained.
In this method, a terminal data is fixed.
The larger is the difference between the pessimistic and optimistic cash flows, the more risky is the project.