Corp Finance #12 Capital Budgeting & Investment Risk Tools
Learn how to use risk management tools when making capital budgeting and investment decisions
What you’ll learn
- List and define risk management tools that relate to capital budgeting and investment decisions
- Explain the concept of population mean and expected value
- Discuss the term population variance and how it can apply to capital budgeting decisions
- Describe standard deviation and how it can apply to capital budgeting decisions
- Explain the concept of coefficient of variation and how it can be used to measure risk in the capital budgeting decision making process
- Define simulation models and how they can be useful in capital budgeting decisions
- Discuss how capital budgeting decisions should take into consideration the overall investment portfolio
- Basic understanding of corporate finance concepts
This course will cover the use of risk assessment tools as they relate to capital budgeting and investment decisions and how to use them.
We will include many example problems, both in the format of presentations and Excel worksheet problems. The Excel worksheet presentations will include a downloadable Excel workbook with at least two tabs, one with the answer, the second with a preformatted worksheet that can be completed in a step-by-step process along with the instructional videos.
When making long term investment and capital budgeting decisions we need to consider the time value of money. The decision-making process will estimate future cash flows and then apply our time value of money concepts to those future cash flows.
This course will take a step back in the process, providing tools to best estimate the future cash flows. To make the best decision we will need to estimate what the future cash flows will be and the likelihood of those cash flows, giving us numbers we can apply present value concepts to while also taking into consideration risk.
To help measure risk, the course will use statistical tools including the population mean, population variance, standard deviation, and coefficient of variation.
We will provide a quick overview of these statistical concepts in general and then consider how we can apply them to measuring risk for investment and capital budgeting decisions.
Author(s): Robert (Bob) Steele