Page 117 - 5.2 i. Manac Finance ITC Summarised Notes
P. 117
CAPITAL INVESTMENT APPRAISAL
Risk
• Can be measured (there is enough information available to
assign a probability).
• Therefore in your calculation assign probabilities to cash
flows and use expected values instead of single values.
Example:
There is a 80% probability that the cash flow in year 1 will be
R80 000, otherwise it will be R50 000.
Expected value = (80 000 x 80%) + (50 000 x 20%) = 74 000.
117
