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                  472                               Corporate Finance                      BRILLIANT’S


                  commonly  used  measure  of  risk.  Variance  VarH$m h¡Ÿ& d¡[aEÝg, EŠgnoŠQ>oS> H¡$e-âbmo go àË`oH$ g§^m{dV
                  measures the deviation about expected cash  H¡$e-âbmo Ho$ S>o{dEeZ H$mo _mnVm h¡Ÿ& ñQ>¡ÊS>S>© S>o{dEeZ,
                  flows  of  each  of  the  possible  cash  flows.  d¡[aEÝg H$m ñH$d¡`a ê$Q> hmoVm h¡Ÿ&
                  Standard  deviation  is  the  square  root  of
                  variance.

                                                        n             2
                                              S.D.        CF  EVCF    P 
                      Symbolically,                          t           t  
                                                        t 1
                      (b) Coefficient of Variation: Coefficient of  (b) H$mo{\${eEÝQ> Am°\$ d¡[aEeZ: H$mo{\${eEÝQ> Am°\$
                  variation is  a  relative  measure of  risk.  It  is  d¡[aEeZ,  [añH$ H$m [abo{Q>d _oOa h¡ Bgo àmo~o{~{bQ>r
                  defined  as  the  standard  deviation  of   {S>ñQ´>rã`yeZ Ho$ ñQ>¡ÊS>S>© S>o{dEeZ Ho$ ê$n _| n[a^m{fV
                  probability  distribution  divided  by  its  {H$`m OmVm h¡ {Ogo EŠgnoŠQ>oS> d¡ë`y go {S>dmBS> H$a {X`m
                  expected value.
                                                              J`m h¡Ÿ&

                                                             S.D.
                                                   C.V. =
                                                        Expected value
                      The coefficient  of  variation  is  a  useful  H$mo{\${eEÝQ> Am°\$ d¡[aEeZ [añH$ H$mo _mnZo H$m Cn`moJr
                  measure of risk when we are comparing the   VarH$m h¡ O~ h_ Eogo àmoOoŠQ²>g H$mo H$ånoAa H$a aho hm|
                  projects which have:
                                                              {OZH$m…
                  (a) Same  standard  deviation  but  different  (a) ñQ>¡ÊS>S>© S>o{dEeZ g_mZ hmo naÝVw EŠgnoŠQ>oS> d¡ë`yO
                      expected values, or                         AbJ-AbJ hmo `m
                  (b) Different standard  deviations but  same  (b) ñQ>¡ÊS>S>© S>o{dEeZ AbJ-AbJ hmo naÝVw EŠgnoŠQ>oS>
                      expected values, or                         g_mZ hm| `m
                  (c) Different standard deviation and different  (c) ñQ>¡ÊS>S>©  S>o{dEeÝg  ^r  AbJ-AbJ  hmo  VWm
                      expected values.                            EŠgnoŠQ>oS> d¡ë`yO ^r AbJ hm|Ÿ&

                      Note: While  comparing projects  on  the    ZmoQ>… [añH$ Ed§ [aQ>Z© Ho$ AmYma na àm°OoŠQ²>g H$mo
                  basis of risk and return, which project should  H$ånoAa H$aVo g_` {H$g àmoOoŠQ> H$mo àmW{_H$Vm Xr OmEJr
                  be  preferred  depends  upon  the  attitude  of  `h [añH$ Ho$ à{V BÝdoñQ>a Ho$ EQ>rQ²>`yS> na {Z^©a H$aoJmŸ&
                  investor towards risk. If he wants to obtain a  `{X dh A{YH$ [aQ>Z© MmhVm h¡ Vmo Cgo A{YH$ [añH$ dmbo
                  higher  return, he  may prefer  a project  with
                  higher risk. If he is risk-averse, he should prefer  àmoOoŠQ> H$mo àmW{_H$Vm XoZr hmoJrŸ& `{X dh [añH$ boZo _| é{M
                  less risky project.                         Zht aIVm Vmo Cgo H$_ [añH$s àmoOoŠQ> H$mo AnZmZm hmoJmŸ&
                  2. Simulation Analysis                      2. {gå`wboeZ EZm{b{gg

                      Simulation is another statistical technique  {gå`wboeZ, A{ZpíMVVm H$s pñW{V`m| _| {ZU©` boZo
                  to deal with uncertainty. It is also based on the  H$s EH$ AÝ` gm§p»`H$s` nÕ{V  h¡Ÿ& `h ^r àmo~o{~{bQ>r Ho$
                  concept of probability. The meaning of ‘simu-  H$m°ÝgoßQ> na AmYm[aV h¡Ÿ& '{gå`wboeZ' H$m AW© h¡ dmñVd
                  lation’ is ‘creation of an appearance without  _| hþE {~Zm {H$gr KQ>Zm H$m Am^mg H$aZmŸ& {gå`wboeZ
                  reality’. In simulation, the appearance seems  _|, H$moB© KQ>Zm dmñV{dH$ bJVr h¡ naÝVw dmñV{dH$ hmoVr
                  to be true but it is not real. The information  Zht h¡Ÿ& {gå`wboeZ EZm{b{gg go àmßV gyMZmAm| H$m Cn`moJ
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