RicherFin Education

Corporate Finance

Risk in Investment Projects

Investment risk arises from the assumptions governing cash flows, their timing and the decisions that remain available. This course organizes uncertainty through sensitivities, scenarios, thresholds and decision trees.

Course purpose

The decision examined

A central NPV describes only one path. Volume, price, margin, construction time, foreign exchange and working capital can move together, while liquidity may fail before favorable cash flows arrive.

Objectives

Learning outcomes

  • Link risk factors to cash-flow lines.
  • Build internally consistent scenarios.
  • Distinguish expected NPV from loss exposure.

Concepts

Key concepts

  • Sensitivity
  • Scenario
  • Expected NPV
  • Break-even
  • Decision tree
  • Liquidity risk

Syllabus

Course structure

  1. Sources of uncertainty
  2. Sensitivity
  3. Scenarios
  4. Break-even analysis
  5. Contingent decisions
  6. Stress liquidity

Extract

Analytical framework

An average does not describe the loss

For mutually exclusive scenarios, expected NPV is:

Expected net present value

Expected NPV = ∑s=1Sps×NPVs

Two projects may have the same expected NPV but very different downside distributions and peak funding requirements. The complete scenario set must therefore remain visible.

Full course

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