Ups needs to consider all risks when considering a

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UPS needs to consider all risks when considering a potential investment to add to its portfolio. There are three main risks that need to be taken into consideration:Stand-Alone Risk – This is the risk a company will have if the company has one project. This risk can cause variability in an investment’s cash flows and is usually measured by the standard deviation of the investment’s NPV (Brigham & Ehrhardt, 2017).Corporate Risk – This is the risk of variability an investment contributes to a company’s stock returns (Brigham & Ehrhardt, 2017).
Market Risk – This is the risk that is related to the investment’s effect on the company’s beta coefficient (Brigham & Ehrhardt, 2017).Three different risk analysis can be utilized to determine the risk for potential investments. Those risk analyses are:Sensitivity Analysis – This analysis measures an NPV’s change that results from a given percentage change in one input variable while other inputs are held at their expected values (Brigham & Ehrhardt, 2017).Scenario Analysis – This analysis determines what would happen to an investment’s NPVif several inputs turn out to be better or worse than expected (Brigham & Ehrhardt, 2017).Monte Carlo Simulation – This simulation ties together sensitivities, profitability distributions, and correlations among the input variables to determine different outcomes of an investment that are not easily predicted due to the intervention of random variables (Brigham & Ehrhardt, 2017).These three types of analysis provide what if scenarios for companies who are considering pursuing investments. They are a great tool to use to analyze and determine the potential of an investment companies may be interested in pursuing. It is recommended for UPS to perform these three analyses before officially pursuing the potential investment.Difference Between NPV and IRRNet present value (NPV) and internal rate of return (IRR) are the two most commonly used measurements by companies in capital budgeting. These figures help companies determine whether a new investment or expansion opportunity is worthwhile by evaluating the profits of the investment or expansion opportunity (Gallant, 2018).
The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as net present value (NPV). NPV is used to analyze the profitability of a projected investment or project (Kenton, 2019). NPV is displayed in the form ofcurrency and takes into consideration additional shareholder’s wealth when calculating the investment’s profitability (Vaidya, 2019). The advantages to use NPV to determine a project’s profitability is that it is easier to understand and grasp by the general public, time value of moneyis given more importance, the project’s profitability and risk factors are given high priority, NPV helps companies maximize the wealth, and it takes into consideration the before and after cash flow over the life span over the project (Vaidya, 2019). The disadvantages to use NPV to

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