Capital Rationing Question:
Download Questions PDF

Tell me what methods are used to ascertain the risk in capital budgeting decisions?


The methods which are used to ascertain the risk in capital budgeting decisions include:-

1) Sensitivity Analysis: - it is also known as what-if analysis where it gives the information about the feasibility of a project in variable quantities. It is calculated in terms of NPV (Net Profit Value).

2) Scenario Analysis : - in this analysis deviation of number of interconnected variable is determined. It doesn’t concentrate on change in one particular variable at specific point of time.

3) Break Even Analysis : - this analysis is used to determine the minimum production and sales amounts for a project to avoid losing money.

4) Simulation Analysis :- is used in formulating the probability analysis for a criterion of merit with the help of random blending of variable values that carry a relationship with the selected criterion.

5) Corporate Risk Analysis : its main focus is on the analysis of risk that may have big influence in cash flow of the firm.

6) Risk Management:- its main focus is on price strategy, fixed and variable cost, insurance, long term arrangements, derivatives, strategic alliance and improvement of information.

Download Capital Rationing Interview Questions And Answers PDF

Previous QuestionNext Question
Explain Risk Management?What is Capital Rationing?