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Scenario analysis and risk-adjusted NPV

Are you going to do the whole problem set for me or just part c and d?
Also, can i get the answer in 3 hours? Thanks very much for your help.

With the data provided, how can i perform the scenario analysis in excel and how to find the risk-adjusted NPV if the project appears to be more or less risky than an average project (10%)?

Please give me some hints or steps.


Solution Preview

The investment decisions of a firm are generally known as the capital budgeting, or capital expenditure decisions. The firm's investment decisions would generally include expansion, acquisition, modernization and replacement of the long-term assets. Sale of a division or business (divestment) is also as an investment decision.

Decisions like the change in the methods of sales distribution, or an advertisement campaign or research and development programs have long-term implications for the firm's expenditures and benefits, and therefore, they should also be evaluated as investment decisions. Several different procedures are available to analyze potential business investments. Some concepts are better than others when it comes to reliability but all provide enough information to get the general scope of the investment.

Concepts of Risk analysis

Risk exists because of the inability of the decision-maker to make perfect forecasts. In formal terms, the risk associated with an investment may be defined as the variability that is likely to occur in the future returns from the investment.
Three broad categories of the events influencing the investment forecasts:
General economic conditions
Industry factors

Solution Summary

This provides the steps to calculate the Scenario analysis and risk-adjusted NPV