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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.












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