Ch 3 · Advanced Capital Budgeting Decisions — CA Final AFM
4 levels · 54 questions · free
How to play
Mixed questions from this chapter — fill the missing term, sort into the right box, match the pairs, order the steps, or catch the formula that is wrong.
What this drills
Six different ways to handle risk in an appraisal, and the exam asks you to tell them apart — especially sensitivity vs scenario, which differ only in how many variables move at once.
- ✓Expected NPV, standard deviation and coefficient of variation
- ✓Risk Adjusted Discount Rate and Certainty Equivalent
- ✓Sensitivity, scenario, simulation and decision tree analysis
- ✓EAC, replacement analysis and Adjusted Present Value
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CA Final books →Ch 3 · Advanced Capital Budgeting Decisions — questions
What is the difference between sensitivity and scenario analysis?+
Sensitivity changes ONE variable at a time, holding everything else constant, to find the critical variable. Scenario changes several simultaneously in a consistent story — boom, normal, recession — and brings probabilities in.
Why is the certainty equivalent discounted at the risk-free rate?+
Because the risk has already been removed in the NUMERATOR by the CE coefficient. Discounting at the cost of capital as well would count the same risk twice.