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<p><strong>(a) Adjusting the Cash flows,</strong></p> <p><strong>(b) Adjusting the Discount Rate,</strong></p> <p><strong>(c) Adjusting the life,</strong></p> <p><strong> (d) All of the above</strong></p>
Option D.
all of the above
D) All of the above
All of the above.
All of the above factors are mostly sensitive to outcomes/results, therefore the adjustment of sensitive parameters may either increase or decrease the risk, or it might even not change. Therefore, in a sence that if the initial analysis results are based on correct parameters, so indeed the risk might erise... Still it is a topic to discuss. In general, one should agree to answer (D) in this case, as no other interpretations/definitions are given.
In a proper capital budgeting, one should conclude results based on probability measures, where variances place risk measuring factors. With monte carlo simulation, the results will be most proper, as they will be based on mean values, or most proper sensitive parameter values. If one changes those values, then risk increases.
In this case, the answer would be (D) for sure.
Investor Can minimize the losses by incorporating the risk in capial budget.
