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Risk Analysis on Investment Decision
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Risk Analysis on Investment Decision Charles Webb University of Phoenix Risk Analysis on Investment Decision Introduction When deciding on an investment opportunity, one has to consider the risks involved. As an investor or manager makes decisions on which project to invest, consideration must be given for the Net Present Value (NPV) of the different projects from which to choose. Afterward, a good investor should conduct sensitivity and scenario analysis as well as a risk analysis. "Sensitivity analysis shows NPV under varying assumptions, giving managers a better feel for the project's risks" (Ross et al, 2005). In the real world, it is likely that there will be many variables affecting a project. The sensitivity analysis only modifies one variable at a time. This is where the scenario analysis comes into play. "Scenario analysis examines a project's performance under different scenarios (e.g., war breaking out or oil prices skyrocketing)" (Ross et al, 2005). Finally, the break-even...
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