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Risk Analysis on Investment Decision Simulation

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See attached file for simulation.

After completing the Capital Budgeting simulation, prepare an APA paper analyzing the risks associated with your investment decision. Included in the analysis of risk should be a mitigation plan for each risk discussed.

Focus on concepts learned and applied in the exercise and present the detailed results from the simulation analysis. Explain the risks and how Silicon Arts addressed the risks as well. You need to develop a thorough understanding of sensitivity analysis, net present value, internal rate of return, and profitability index

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There is a risk involved in all new projects. This risk is incorporated in the project cash flow. This risk result from (a) Economic conditions, (b) Market conditions, (c) Taxes, (d) Interest rate and (e) International conditions. Uncertainty arise from any of these factor affects the future cash flow from a project. So it's become very important to measure the risk that is associated with the Silicon Arts projects.

If we look at these risks, economic risk, the market condition that includes expected demand and supply has a great impact on the cash flows from the project. Also taxes from the government have a great impact on the company projects and its cash flows. Interest rate fluctuations and international condition that also include the exchange rate risk affects the cash flow generated from the project.

Any change in the economic condition directly affects the project cash flow. To mitigate this risk it becomes very important for a company to consider the project cash flow during the boom, recession and the normal economic conditions. As we can see here Silicon Arts has included the risk associated with the economic condition in both of its project. This risk has been considered in the market forecast for each of its project.

Estimates of cash flows are based on assumptions about the economy, competitors, consumer tastes and preferences, construction costs, and taxes, among a host of other possible assumptions. One of the first things managers must consider about these estimates is how sensitive they are to these assumptions.

Some ...

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Jayant Kumar, MBA
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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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