Principles of Managerial Finance

422 PART 3 Long-Term Investment Decisions LG3 LG4 LG5 e. Make a recommendation to accept or reject the new press, and justify yo ...

CHAPTER 9 Capital Budgeting Techniques 423 WW W Remember to check the book’s Web site at http://www.aw.com/gitman for additional ...

LEARNING GOALS 424 RISK AND REFINEMENTS IN CAPITAL BUDGETING CHAPTER Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU Acco ...

425 W ith future volume growth in North America and Western Europe lim- ited to 3 percent at most, executives at Bestfoods(now a ...

426 PART 3 Long-Term Investment Decisions 10.1 Introduction to Risk in Capital Budgeting The capital budgeting techniques introd ...

10.2 Behavioral Approaches for Dealing with Risk Behavioral approachescan be used to get a “feel” for the level of project risk, ...

428 PART 3 Long-Term Investment Decisions Calculator Use Recognizing that the initial investment (CF 0 ) is the present value (P ...

CHAPTER 10 Risk and Refinements in Capital Budgeting 429 ble values for a given variable, such as cash inflows, to assess that v ...

Scenario analysisis a behavioral approach similar to sensitivity analysis but broader in scope. It evaluates the impact on the f ...

CHAPTER 10 Risk and Refinements in Capital Budgeting 431 By repeating this process perhaps a thousand times, managers can create ...

10.3 International Risk Considerations Although the basic techniques of capital budgeting are the same for multinational compani ...

CHAPTER 10 Risk and Refinements in Capital Budgeting 433 to achieve a broad corporate objective such as completing a product lin ...

434 PART 3 Long-Term Investment Decisions Therisk-adjusted discount rate (RADR)is the rate of return that must be earned on a gi ...

CHAPTER 10 Risk and Refinements in Capital Budgeting 435 project falling above the SML would have a positive NPV, and any projec ...

436 PART 3 Long-Term Investment Decisions if the firm discounts a project’s cash inflows at too high a rate, it will reject acce ...

FIGURE 10.3 Calculation of NPVs for Bennett Company’s Capital Expenditure Alternatives using RADRs Time lines depicting the cash ...

438 PART 3 Long-Term Investment Decisions Spreadsheet Use Analysis of projects using risk-adjusted discount rates (RADRs) also c ...

CHAPTER 10 Risk and Refinements in Capital Budgeting 439 to do it for them. And investors can diversify more readily—they can ma ...

440 PART 3 Long-Term Investment Decisions RADRs in Practice In spite of the appeal of total risk, RADRs are often used in practi ...

CHAPTER 10 Risk and Refinements in Capital Budgeting 441 renewal activities; higher-risk projects involve expansion, often into ...