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    Risk in setting different NPV requirements

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    Do you account for the risk in setting different NPV requirements, of in the certainty of the cash flow itself?

    © BrainMass Inc. brainmass.com October 9, 2019, 6:13 pm ad1c9bdddf
    https://brainmass.com/economics/uncertainty/risk-in-setting-different-npv-requirements-81912

    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.

    Criteria of selection of Capital Budgeting project:

    It should maximize the shareholders' wealth.
    It should consider all cash flows to determine the true profitability of the project.
    It should provide for an objective and unambiguous way of separating good projects from bad projects.
    It should help ranking of projects according to their true profitability.
    It should recognize the fact that bigger cash flows are preferable to smaller ones and early cash flows are preferable to later ones.
    It should help to choose among mutually exclusive projects that project which maximizes the ...

    Solution Summary

    This discusses the risk in setting different NPV requirements

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