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Chapter 6: Risk and Project Appraisal
Learning objectives
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After working through this chapter, the reader is expected to be able to present a more realistic and rounded view of a project's prospects by incorporating risk in an appraisal. This enables more informed decision-making. Specifically you should be able to:
- adjust for risk by varying the discount rate;
- present a sensitivity graph and discuss break-even NPV;
- undertake scenario analysis;
- make use of probability analysis to describe the extent of risk facing a project and thus make more enlightened choices;
- discuss the limitations, explain the appropriate use and make an accurate interpretation of the results of the four risk techniques described in the chapter.
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