Traditional Capital Budgeting

1               Traditional Capital Budgeting

1.1            NPV Under Certainty

1.1.1         Example: Risk-Free Discounting

1.2            NPV Under Uncertainty

1.2.1         Risk-Adjusted Discount Rate Approach

1.2.1.1      Example: Risk-Adjusted Discounting

1.2.2         Certainty‑Equivalent Approach

1.2.2.1      Example: Certainty Equivalents 

1.2.3         Capital Asset Pricing Model (CAPM) Approach

1.2.3.1      Risk Reduction via Diversification

1.3            Sensitivity Analysis

1.4            Monte Carlo Simulation

1.5            Decision Tree Analysis