One of the problems of using simulations to incorporate risk in capital budgeting is related to the

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One of the problems of using simulations to incorporate risk in capital budgeting is related to the idea that the probability distributions of successive cash flows usually are not independent. If the first period’s cash flow is at the high end of its range, for example, flows in subsequent periods are more likely to be high than low. Why do you think this is generally the case? Describe an approach through which the computer might adjust for this phenomenon to portray risk better.

Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the...
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