Question

Financial managers should be able to determine how risk factors into a company’s decision to expand or start a new project. Select one of the publicly traded Fortune 500 corporations listed below: Amazon Use Mergent Online to access the company’s annual report to its stakeholders, then complete the following activities: Retrieve and analyze the steps that the selected company uses for scenario and sensitivity analysis, risk management techniques, and how companies mitigate currency fluctuation risk for the launch of a new product/project. Prepare your analysis in a minimum of 500 words with APA formatting.

Answer 1

A company may choose to expand by two ways, either it can choose to expand its own business or can enter into a new line of business

The decision to choose what choice is to be selected depends upon how the business of company is going on.

If the company is having a great deals in the current product business than this is good to expand the current business and if the company is not having a good deal of business in the same product than this is good to start a new business.

Sensitivity analysis

In case of doing a sensitivity anaylsis this is seen that what will be the effect of change in one variable on the other variable. Both of the variables are considered to be independent.

In case of sensitivity analysis company check that what will be the change in sale of current product if company start a new product.

Risk management techniques

Risk mangenent is important to mitigate losses

Below are some of the techniques

Diversification- this means that the company should diversify the product portal so if in case one fails there will be another product to cover up the loss from its sales

Avoidance

The best way to reduce risk is to avoid that idea that can not be judged with the attached risk levels.

Loss reduction

Not all the assets should be put to risk, there must be loss reduction techniques that says that only that only a viable level of risk should be accepted.

Change in the Fx is the major reason there are changes in the estimated income.

Companies use the below methods to mitigate the risks

Do a forward contract

This contract have a predetermined rate of exchange that will be used.

Use hedging

Hedging is a another way by which the company saves it from the change in the FX