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Unformatted text preview: , but it is difficult to assess the "proof" since we cannot tell how well companies could have done
had they used more technical techniques! 6. Summary To screen and select among investment projects, the financial manager must estimate future cash flows
for each project, evaluate the riskiness of those cash flows, and evaluate each project's contribution to
the company's value and, hence, to owners' wealth. The financial manager has to evaluate future cash
flows -- cash flows that are estimates, which mean they are uncertain. The financial manager must also
to incorporate of risk into the analysis of projects to identify which ones maximize owners' wealth. Capital budgeting & risk, a reading prepared by Pamela Peterson Drake 13 Statistical measures that can be used to evaluate the risk of a project's cash flows are: the range, the
standard deviation, and the coefficient of variation. Sensitivity analysis and simulation analysis are tools
that can be used in conjunction with the statistical measures, to evaluate a project's risk. Both techniques
give us an idea of the relat...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07