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Corporate risk mitigation

Need assistance with the following question.

Need an explanation of corporate risk mitigation techniques used in capital budgeting.

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Need assistance with the following question.

Need an explanation of corporate risk mitigation techniques used in capital budgeting.
Capital budgeting involves taking decisions about the long term assets mix of the organization. Capital budgeting decision is surrounded by risk factors. Risk in capital budgeting may be defined as the variation of actual cash flows from the expected cash flows. (Resources, 2010) The future is uncertain and full of risks. Longer the period of project, greater may be the risk and uncertainty. The financial forecasts may not come true. Hence different project having different risk levels should have different discount rate. This is because of difference in risk premium as discussed above. Following factors can cause risk for a project:
1) Market risk/Systematic risk
Systematic Risk means the risk inherent to the entire market or entire market segment. This is also known as "un-diversifiable risk" or "market risk." Hence systematic risk represents the uncertainty related to overall market. For example the world economy is affected now by recession and contraction in GDP.
2) Business risk and financial risk
As per Investopedia, "Business risk is the risk that a company will not have adequate cash flow to ...

Solution Summary

Corporate risk mitigation is examined.

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