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    Risk Analysis of Capital Budgeting Simulation

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    After completing the Capital Budgeting simulation, prepare a paper analyzing risks associated with your investment decision.

    Included in the analysis of risks should be a mitigation plan for each risk discussed.

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    https://brainmass.com/business/capital-budgeting/risk-analysis-of-capital-budgeting-simulation-110901

    Solution Preview

    When deciding on an investment opportunity, one has to consider the risks involved. As an investor or manager makes decisions on which project to invest in, it is important to take into consideration the Net Present Value (NPV) of the different projects from which to choose. Afterward, a good investor should conduct sensitivity and scenario analysis, as well as a risk analysis. "Sensitivity analysis shows NPV under varying assumptions, giving managers a better feel for the project's risks" (Ross et al, 2005). In the real world, it is likely that there will be many variables affecting a project. The sensitivity analysis only modifies one variable at a time. This is where the scenario analysis comes into play. "Scenario analysis examines a project's performance under different scenarios (e.g., war breaking out or oil prices skyrocketing)" (Ross et al, 2005). Finally, the break-even analysis helps to calculate the figure at which the project breaks even. This is useful as managers want to know how bad forecasts must be before a project loses money. All three analyses help an organization or individual understand the risks involved in a project.
    The goal of this paper is to analyze the risks associated with the investment decision made in the Capital Budgeting simulation.

    In the Capital Budgeting simulation, Eichner's major goals for Silicon Arts Inc. (SAI) are to increase market share and keep pace with technology. The two proposals prepared by the task force are to expand into existing Digital Imaging market in order to increase market shares or enter the wireless communications market. The first step in the analysis is to examine the probable future scenarios ...

    Solution Summary

    The paper discusses all the risks associated with an investment decision. The goal of this paper is to analyze the risks associated with the investment decision made in the Capital Budgeting simulation and discuss mitigation techniques for the risks.

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