Business Coursework: Measure of Risk, Context of Portfolios

Business and Marketing
Name:
Institution:
Course:
Date:
Business and Marketing
There are five steps to capital budgeting, the first one being identifying and evaluating the available or potential opportunities. This is then followed by estimating the operation and implementation costs, estimating cash flow, assessing the risks and the implementation aspect (Motley, 2016).
With mutually exclusive projects, it means that accepting one investment will also mean rejecting another. With the independent projects, they can both be accepted and run separately.
Nonfinancial information used in project analysis, may include evaluating future legislations, industry standards, staff morale, relationships with suppliers and customers and future threats.
The time value of money is basically based on the idea that money that is available at the present time is worth more than the same amount in the future relative to the earning capacity potential it will have.
Risk adjusted discount is an estimation of the present value of cash with reference to a risk investment. For individual projects, periodical returns by investors are represented for the element of pulling funds to a specific project.
Discounting on the other hand relates to determination of the present value of any payment which are to be received in the future. Given the time value of money, the dollar is worth more today that will be worth tomorrow. A product can be sold at a lower price/tomorrow’s price than the current price/today’s price. If a computer, for example, is worth a thousand dollars today, it will be worth less than a thousand dollars in six months’ time. If a seller discounts the computer, they will sell it at the price that they would be received in the future. This means that it will be cheaper, relative to the fact that the worth of the dollar will be lower in six months than it is today. ...