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NPP

5.2

CONCEPT OF RISK AND RETURN / [añH$ VWm [aQ>Z© H$s AdYmaUm

Q.52. Explain the concept of risk in capital budgeting.
H¡${nQ>b ~OqQ>J _| [añH$ H$s AdYmaUm g_PmB`o&
OR
What are the types of risk involved in the evaluation of capital budgeting decision?
H¡${nQ>b ~OqQ>J {ZU©` Ho$ _yë`m§H$Z _| gpå_{bV Omo{I_ Ho$ àH$ma Š`m h¢?

Introduction n[aM`
Risk is inherent in almost every business {~OZog gå~ÝYr àË`oH$ {ZU©` _| [añH$ hmoVr h¡Ÿ&
decision. In case of capital budgeting or invest- H¡${nQ>b ~OqQ>J AWdm BÝdoñQ>_|Q> gå~ÝYr {S>grOÝg _|
ment decisions, it is higher because the costs [añH$ Am¡a A{YH$ ~‹T> OmVr h¡ Š`m|{H$ H$m°ñQ²>g Ed§ àm°{\$Q>²g
and benefits extend over a long period of time H$m gå~ÝY bå~r Ad{Y go hmoVm h¡ {Og_| ~hþV-gr ~mV|
during which many things can change in un-
AàË`m{eV ê$n go n[ad{V©V hmo OmVr h¡Ÿ& {d{^ÝZ àH$ma Ho$
anticipated ways. Different types of investment
proposals may differ in terms of risk. A re- BÝdoñQ>_|Q> ànmoOëg _| [añH$ ^r AbJ-AbJ hmoVr h¡Ÿ&
search and development project may be more EH$ [agM© Ed§ S>odbn_|Q> go Ow‹S>m àmoOoŠQ>, EŠgnm§eZ
risky than an expansion project and the ex- àmoOoŠQ> go Á`mXm [añH$s hmo gH$Vm h¡ VWm EŠgnm§eZ
pansion project may be more risky than a re-
àmoOoŠQ>, [aßbog_oÝQ> àmoOoŠQ> go Á`mXm [añH$s hmo gH$Vm
placement project. In view of such differences, h¡Ÿ& Bg A§Va Ho$ H$maU H¡${nQ>b BÝdoñQ>_|Q> gå~ÝYr ànmoOëg
variations in risk need to be considered in capi-
tal investment proposals. _| [añH$ Ho$ A§Va H$mo Ü`mZ _| aIZm Amdí`H$ h¡Ÿ&
Meaning of Risk [añH$ H$m AW©
Risk is defined as an exposure to loss or [añH$ H$mo bm°g H$s gå^mdZm Ho$ ê$n _| n[a^m{fV
injury. It refers to the chance that some {H$`m Om gH$Vm h¡Ÿ& `h {H$gr AàË`m{eV KQ>Zm Ho$ hmoZo
unfavourable event may occur. If a person bets Ho$ MmÝg H$mo Xem©Vr h¡Ÿ& `{X H$moB© ì`{º$ {H$gr Kmo‹S>o na Xmd
on the horses, he has risk of losing his money. bJmVm h¡ Vmo CgHo$ YZ Ho$ gmW [añH$ Ow‹S> OmVr h¡Ÿ& Bgr
Similarly, if the funds are invested by investor
in speculative stocks, he is taking a risk in the àH$ma, `{X BÝdoñQ>a eo`a _mH}$Q> _| \$ÊS> BÝdoñQ> H$aVm h¡
hope of making an appreciable return. Vmo dh AÀN>o [aQ>Z© H$s Cå_rX _| [añH$ boVm h¡Ÿ&

Nature of Risk [añH$ H$s àH¥${V
Risk exists because the decision-maker can {ZU©` boZo dmbm ì`{º$ na\o$ŠQ> nydm©Zw_mZ Zht bJm
not make perfect forecasting. Perfection in gH$Vm Bg{bE [añH$ H$s pñW{V ~ZVr h¡Ÿ& nydm©Zw_mZ _|
forecasting is not possible because the future na\o$ŠeZ gå^d Zht h¡ Š`m|{H$ dh {OZ ^mdr KQ>ZmAm| na
events on which they depend are uncertain. {Z^©a hmoVm h¡ do A{ZpíMV hmoVr h¢Ÿ& gm_mÝ`V… {H$gr

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