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Methods of Decision Making | Report

   

Added on  2020-02-03

10 Pages2637 Words76 Views
FINANCIALMANAGEMENT
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TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................1Sensitivity and scenario analysis relating to capital budgeting techniques.................................1A. Sensitivity analysis.................................................................................................................1B. Scenario analysis....................................................................................................................3TASK 2............................................................................................................................................4Similarities as well as differences between CAPM and CML model.........................................4CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................7
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INTRODUCTIONFinance is plays an integral role in each and every business organisation in orderto exist and run in the industry. Without financial resources the entity can not establish inmarket and offers goods and services to the consumers. Further, to manage financialresources is also necessary with help of better and effective decision making. The presentreport throws light on three methods of decision making such as sensitivity analysis,capital budgeting and scenario analysis. It describes relation between sensitivity analysisand capital budgeting as well as scenario analysis and investment appraisal techniques. Inthe second part it shows differences as well as similarities among the capital asset pricingmodel and capital market line.TASK 1Sensitivity and scenario analysis relating to capital budgeting techniquesCapital budgeting is a technique which helps to management in order to assess theviability of a project from two or more mutually exclusive projects. There are various methods ofcapital budgeting where the company is able to determine risk, return as well as future value ofthe potential investment. The various tools are such as net present value, internal rate of return,average rate of return, payback period etc (Coffie and Chukwulobelu, 2012). The investmentappraisal techniques are related to the sensitivity as well as scenario analysis in order to managefinancial resources of the company. Relation between the two analysis with reference to capitalbudgeting tools is given as below:A. Sensitivity analysisThe analysis is helps to the managers in order to determine uncertainty of the project thatwhether investment will impact on financial performance of the firm in positive manner ornegative manner. Sensitivity analysis is a process which consists changing in forecasting or makeassumptions for analyse and derive project's finance impacts on the business performance. It canbe known as an uncertainty analysis as well by which the company is able to determine futurevalue of the firm (Capital Budgeting Techniques: Certainty and Risk, 2016). Most of thecompanies are use capital budgeting tools for undertake a project and take appropriate businessdecisions. On the other side capital budgeting is helps to the company in order to determine the1
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