Risks related to capital budgeting

cash flow do nothing 46 46 financial risk risk higher

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Unformatted text preview: outcome of lower than expected income/cash flow outcome Risk Management??? Transfer the risk via fixed rate loans or use derivatives Cash Flow Do Nothing 47 47 Financial Risk Risk: higher interest rates causing the undesirable higher outcome of lower than expected income/cash flow outcome Risk Management??? Transfer the risk via fixed rate loans or use derivatives Cash Flow Do Nothing Reduce the cost of the negative impact via lower debt financing or use derivatives 48 48 Derivative Instruments Derivative Value is depends directly on, or is derived from, Value derived the value of another security or commodity, called the underlying asset underlying Underlying Assets Underlying Financial Derivatives Financial 0.3 So, I now know What Risk Management is, but How do I do it??? How How??? How??? Step 1: Be aware, identify the risks you face. Step Be Step 2: Evaluate: Step Evaluate: the likelihood that the risk will occur, and the how bad the hurt will be if it does occur Step 3: Decide on how you will address the risk Step Decide reduce, transfer, avoid, nothing, or some combination Step 4: Implement Step Implement What is the most frustrating words used in management?? What Answer: “If I had only ……” Answer: Step 5: Control Step Control Monitor to assure that what you said you would do, you did, and Monitor that you are getting what you want out of your your risk management strategies. management Prioritizing Which Risks to Address First Address Act if cost High effective Probability of Happening Immediate action Action required Small Low No action required Catastrophic Potential Impact Source: Dr. Geoff Benson, North Carolina State University The Goal of Cor. Finance The To maximize the To share holder’s wealth or your own wealth. your The objective of cor. Fin (Source: NYU’s Stern School of Business) Rich people (less than 20% of pop but earn more than 70% of total income) 70% What about these? What And this? And More than 60% of the population If poor people have some money, they will spend for your products. No social problems too. problems (win-win) See you @ ceremony See Contact Info. Contact Facebook : chainarinsrn@hotmail.com Facebook chainarinsrn@hotmail.com Twitter: chainarinsrn E-mail: chainarinsrn@hotmail.com BB : 224C162C...
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This document was uploaded on 02/03/2014.

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