ABFM: Concepts and Practice · Part B: Advanced Financial Management

Chapter 12: Risk in capital budgeting

Cash flows are estimates, not facts: sensitivity and scenarios, the Hillier model, simulation, decision trees and risk-adjusted rates.

Buyers of the e-book, or of the print copy, which includes it, read the whole chapter. Everyone can read the free sample, pages 1 to 24 of the e-book.

In this chapter

• 12.1Sources and measures of riskp. 157
• 12.2Sensitivity and scenario analysisp. 158
• 12.3The Hillier model and simulationp. 159
• 12.4Decision treesp. 160
• 12.5Adjusting for and managing riskp. 161
• Exam traps and quick checksp. 162
• Practice: 16 questions in three roundsp. 163
• Answers, with every wrong option explainedp. 165
• Make it stickp. 167
• Chapter 12 on one pagep. 168

Corrections and updates

None for this chapter so far. Every correction to the book, and any rule that changes after its date, is listed on the errata page.