Identify and explain three methods of handling risks in capital budgeting. (8 marks) Company A is considering investing in a project which has a three year life. The project would involve an initial investment of Sh.20 million. The finance manager has come up with expected probabilities for various possible economic conditions as follows: Year 1 2 3 Economic Conditions High growth Average growth No growth High growth Average growth No growth com 20 High growth Average growth No growth Sh.'000' Net cash flows (20,000) 10,000 6,000 2,000 12,000 8,000 4,000 16,000 12,000 6,000 Probability 1.0 0.2 0.7 10.1 0.3 0.5 0.2 0.4 0.3 0.3 Required: Assuming a discount rate of 15% should company A invest in the project? (12 marks) 124