Self Notes

Advanced Capital Budgeting

Inflation and
Cap. Budg.

APV Approach

Replacement
Decesion
Statistical
Method
Conventional
Method

Decision
Tree
Risk Analysis

Other
Technique Simulation

Sensitivity
Analysis
Scenario
Analysis
Circle- Probability and Box for option to choose
Decision denoted by D1, D2… and Chance denoted C1, C2
Mark respective outflow in the tree then calculate NPV accordingly (do adjustment of PV)
If asked find out SD, NPV (possible outcome NPV) will be X, Prob. (take joint probability of possible outcome) then calculate.
See Drilling Sum (CW pg. 48)
Step 1: Calculate Cumulative probability of all variables and then extract Random number Ex Cumulative Prob.- .3 Random no
Step 2: Calculate NPV by taking respective data as per random data, always use Rf (not Kc) for NPV