Purchase Solution

Risk Analysis of Capital Budgeting Simulation

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution

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.

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 ...

Purchase this Solution


Free BrainMass Quizzes
Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.