Part 5 | Nature of a Capital Investment Decision
Without any doubt, capital budgeting is the most powerful area of financial risk management. Proportional to the size of the firm, decisions to invest capital in new areas can make or break a company. Decisions are made with long-term expectations when much information is not fully known and changing circumstances can invalidate business plans and budgets. If we do it right, our capital budget leads to good decisions based on the best information and solid techniques for analyzing risk. If we do it wrong, trouble lies ahead.
Fortunately, we do have tools to help us in managing this aspect of financial risk. In the two chapters in this part, we measure the two sides of a capital budgeting decision. ...
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