Risk Analysis for Capital Investment Decisions

Abstract

There are two ways in which the risk of a capital project can be described. This article outlines these two approaches: Sensitivity Analysis and Probability Analysis, and emphasises the connection between the two methods. The output of a computer model of the sensitivity of the project to underlying factors is used as input for a probability analysis. The methods are illustrated with a case study, the MM Co Ltd.

Citation

Fung, W.K.H. and Stapleton, R.C. (1980), "Risk Analysis for Capital Investment Decisions", Managerial Finance, Vol. 6 No. 2, pp. 48-61. https://doi.org/10.1108/eb013466