4. Risk analysis in capital budgeting Projects differ in risk, and risk analysis is a critical component of the capital budgeting process Consider the case of United Recycling Inc United Recyding Inc. is one of the largest recyders of glass and paper products in the United States. The company is looking into expanding into the cardboard recycling business. The company's CrO has performed a detailed analysis of the proposed expansion The company's CFO hired a third party consulting firm to estimate the cost per ton of processing the cardboard. The consulting firms et estimate for processing the cardboard was significantly higher than what the CFO had been using in his financial model Based on the information given, determine which of the statements is correct. When the CFO adjusts the cost per ton of processing the cardboard, the project's now will decrease when the Croatjusts the cost per ton of processing the cardboard, the project's NV will increase Evaluating risk in un important part of the capital budgeting process, which of the following is measured by the variability of the project's expected returns O Market, or beta, O Corporate, or within firm, risk Stand alone risk is measured by the project's impact on certainty regarding the firm's future return When projects involve certain, or constant, cash flows, the capital budgeting analysis that can be conducted is very simple and straightforward. Unfortunately, this type of project rarely exists. When a project's cash flows, or the conditions that affect their magnitude or timing, vary from their expected values, then the analysis becomes more complicated. Projects that have the potential to exhibit greater or lesser levels of risk than the firm's average or normal, level means that adjustments should be made to the capital budgeting analysis process. Several techniques are used to assess the standalone risk, which reflects the uncertainty about the project's cash flows, some of these techniques are: (1) sensitivity analysis, ) scenario analysis, and (3) Monte Carlo simulation, measures the percentage change in the represent value (NPV) that results from a given percentage change in one of the Input variables while other variables are held constant at their expected values. a tik malysis technique that uses sophisticated software to analyze a turpe rumber of scenaries and generate estimated rates of return and risk indexes Save & Continue Continue wout saving