Which of the following are reasons to analyse the risk of capital projects?
A)The people who propose projects have a vested interest in getting them accepted.
B)Cash flows can rarely be estimated with certainty.
C)Many of the variables in capital budgeting analysis are highly sensitive to changes in economic conditions.
D)All of the above.

Question

Quizplus · Accepted Answer

All of the given options are valid reasons to analyze the risk of capital projects. Option A highlights the potential bias of those proposing projects, which could result in misrepresentation of project costs, benefits, and risks. Option B highlights the inherent uncertainty involved in estimating future cash flows, which are a key input to capital budgeting analysis. Option C highlights the sensitivity of capital budgeting variables to changes in economic conditions, such as interest rates, exchange rates, and inflation, which can significantly impact project viability and risk. Therefore, all these reasons justify analyzing the risk of capital projects.

Which of the Following Are Reasons to Analyse the Risk