Subsidiary versus Parent Perspective

Adjusting Project Assessment for Risk1. Risk-adjusted discount rate - The greater theuncertainty about a project’s forecasted cash flows, thelarger should be the discount rate applied to cash flows.2. Sensitivity analysis - can be more useful than simplepoint estimates because it reassesses the project based onvarious circumstances that may occur.3. Simulation - can be used for a variety of tasks, includingthe generation of a probability distribution for NPV basedon a range of possible values for one or more inputvariables. Simulation is typically performed with the aidof a computer package.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.