ABSTRACT
Capital budgeting decision is the decision of investment in long-term assets. The major criterion for selection of a capital investment project is its financial viability in terms of expected cash inflows over initial cash outflows. They should meet a target benchmark. Capital budgeting techniques are applied in order to determine which projects yield the maximum return over a given period of time. The capital budgeting process includes Identifying investment needs and Capital project evaluation. Risk is an inherent element of any project and therefore needs to be analysed carefully. Risk exists because of the inability of the decision maker to make perfect forecasts. In formal terms, the risk associated with an investment may be defined as the variability that is likely to occur in the future returns from the investment. The most commonly used risk assessment techniques include margin of safety, risk-adjusted discount rate, certainty-equivalent coefficient, sensitivity analysis, scenario analysis, decision-tree analysis and Monte Carlo simulation.
