Expected Values (OT) Flashcards
1
Q
Demand in expected values?
A
Is known, could be a range of values
2
Q
In a discounted cash flow?
A
Always discount to PV
3
Q
Issue with expected value?
A
NPV could be calculated using wrong demand from the range. Could be better to use a simulation
4
Q
What is risk adjusted discount rate?
A
More uncertain cash flows are, the more risk we’re taking by going ahead. Therefore, discount flows at higher discount rate so project gives higher flows
5
Q
What is CAPM?
A
Work out the cost of capital based on risk
