After reading the 11th chapter of the text and doing some research on the internet regarding how a company makes capital decisions, you should be able to relate the process of raising capital and financing a corporation to project evaluation and decisions. Every manager wants tools which can be employed to maximize the chances of efficiently spending your capital are critical to all organizations. Sensitivity analysis and what-if scenarios help us understand the different outcomes of our decisions and be prepared for many eventualities. We need to quantify risk so we can understand what returns are required from our investors.
Ross, S., Westerfield, R., & Bradford, J. (2013). Fundamentals of corporate finance (10th ed.). New York, NY: McGraw-Hill/Irwin.
You should be able to explain and support your reactions to the following questions:
- How do we define and measure risks in financial projects?
- What are examples of uses for sensitivity analysis and what-if scenarios? Any examples from your work experience or research?
- How do we define fixed and variable costs?
- Give examples of the different types of costs in various applications from your experience or research.