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Log in through your institution journal article A Statistical Analysis of Risk in Capital Investment ProjectsOR Vol. 18, No. 1 (Mar., 1967) , pp. 13-33 (21 pages) Published By: Operational Research Society https://doi.org/10.2307/3010766 https://www.jstor.org/stable/3010766 Read and download Log in through your school or library Subscribe to JPASS Unlimited reading + 10 downloads Abstract The object of this paper is twofold: first, to present a brief survey of the various techniques used in the measurement of risk in capital investment proposals; second, to show how, under certain assumptions, the probability distributions of the two most commonly used profitability criterion functions, viz. Net Present Value and Internal Rate of Return, can be obtained. This approach was first presented by Hillier in a paper published in Management Science for the single investment case. It was further generalized by him to the case of interrelated investments in an outstanding paper published in July 1964 as Technical Report No. 73 under contract with the office of Naval Research. These papers are theoretically oriented. The present paper discusses Hillier's approach and considers some numerical examples showing how the approach can be implemented in practice. Secondly, the starting point of Hillier's analysis are the means and variances of cash flows. In many situations these may not be known directly. What may be available are the means and variances of factors which make up these cash flows. The present paper discusses methods for handling such situations. Publisher Information The Operational Research Society, usually known as The OR Society, is a British educational charity. Originally established in 1948 as the OR Club, it is the world's longest established body in the field, with 3000 members worldwide. Practitioners of Operational Research (OR) provide advice on complex issues to decision makers in all walks of life, arriving at their recommendations through the application of a wide variety of analytical methods. The Society's aims are to advance education and knowledge in OR, which it does through the publication of journals, the holding of conferences and meetings, the provision of training courses, and the organisation and support of study (special interest) groups and regional groups. In recent years the Society has made extensive use of internet technologies to facilitate the discovery and exchange of information by its members. Rights & Usage This item is part of a JSTOR Collection. 15.Which of the following can be used to place capital investment proposals involving differentamounts of investment on a comparable basis for purposes of net present value analysis?a.Price-level indexb.Present value factorc.Annuityd.Present value indexANS:DDIF:1OBJ:02 16.An analysis of a proposal by the net present value method indicated that the present valueexceeded the amount to be invested.Which of the following statements best describes the resultsof this analysis?DIF:5OBJ:02 Get answer to your question and much more 17.Which method of evaluating capital investment proposals uses the concept of present value tocompute a rate of return?DIF:5OBJ:02 Get answer to your question and much more 18.Which of the following is a method of analyzing capital investment proposals that ignores presentvalue?DIF:1OBJ:02 Get answer to your question and much more 19.The present value of $20,000 (rounded to nearest dollar) to be received two years from today,assuming an earnings rate of 12%, is:a.$17,860b.$15,940c.$14,240 Which of the following is a method of analyzing capital investment proposal that ignores present value?Answer and Explanation: The correct option is (d) Payback and unadjusted rate of return. Both the payback method and unadjusted rate of return do not use the present value method for analyzing capital investment alternatives.
Which method of evaluating a capital investment project ignores the time value of money?There is one problem with the payback period calculation. Unlike other methods of capital budgeting, the payback period ignores the time value of money (TVM).
Which method of evaluating capital investment proposals uses the concept of present value?Answer and Explanation: The correct answer is option a. Internal rate of return. In capital budgeting, computing the internal rate of return in evaluating capital investment proposals uses the present value concept.
Which of the following methods of evaluating capital investment proposals uses the concept of present value to compute a rate of return quizlet?-The internal rate of return (IRR) method uses present value concepts to compute the rate of return from a capital investment proposal based on its expected net cash flows.
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Which of the following is a method of analyzing capital investment proposals that ignores present values?
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