Académique Documents
Professionnel Documents
Culture Documents
Decision Criteria
Chapter 9
Learning Goals
Discuss the difficulty of finding profitable projects
in competitive markets.
MIRR
Modified Internal Rate Of Return
CAPITAL
BUDGETING AND
RISK ANALYSIS
1. Explain what the appropriate measure of
risk is for capital-budgeting purposes.
2. Determine the acceptability of a new
project using both the certainty
equivalent and risk-adjusted discount
rate methods of adjusting for risk.
A CE B CE
IO 20,000 factor
100% 12,000 factor
100%
CI
1 16,000 95% 8,000 94%
2 8,000 92% 5,000 83%
3 6,000 86% 4,000 80%
4 0 5,000 70%
5 0 4,000 60%
Discount 12% 14%
rate
Sample problem. Risk-adjusted
discount r ate
Project A Project B
IO 20,000 12,000
Cash Inflows
1 16,000 8,000
2 8,000 5,000
3 6,000 4,000
4 0 5,000
5 0 4,000
Discount rate 12% 14%
Coefficient of 5% 20%
variation
Risk-adjusted 12.6% 16.8%
discount rate