Several methods were described in your textbook to deal with the issue of differing levels of...

Several methods were described in your textbook to deal with the issue of differing levels of project risk. These include risk adjusted discount rates, simulation analysis, scenario analysis, and break-even analysis. Which of these would you favor if you were CFO of a corporation? Why? Which of the techniques seems like it would yield the most accurate results? Which would be easiest to implement?

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While doing capital investment, CFO analyze all the risk related to project. There are several methods that can be used by CFO for project evaluation, but the best method should consider the project risks while calculating net present value of cashflow generated by the project.

If I were a CFO of an organization then I will consider risk adjusted discount rate because it calculate NPV while considering the risk factors. There are many advantages of using these method which are as follows:

1. It can be used for the calculation for different time period and one can use different discount rate for risk factors for specific time period.

2. One can adjust the risk by incresing the time period.

3. While evaluating the risk for any project, it is the easiest one.

Risk adjusted discount rate method produces most accurate result at differing levels of project risk and at the same time it is easiest to implement. One needs to calculate the risk factors before using this method.

jeff jeffy answered 2 years ago

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