Skip to the beginning of the images gallery

Measuring Risk in Investment Projects: NPV at Risk

Reference: ADN-286-E
Number of pages: 10
Publication Date: Dec 15, 2021
Source: IESE (España)
Type of Document: Technical Note

Grouped product items
Format	Language	Reference	Use	Qty	Price	Preview
pdf	English	ADN-286-E			As low as €8.20	Preview

You already have a subscription

To order please contact the person in charge of academic purchases in your university.

You'll be able to order once your profile has been validated.

Description

NPV is based on the discount of expected, future cash flows. As such, it is subject to substantial uncertainty in real applications. This uncertainty is often neglected in some companies due to a lack of appropriate tools to manage it. One way to account for all the risk associated with a particular investment project is to use the probability distribution associated with the NPV (NPVAR), once the main uncertainties have been identified and measured. We explain how this analysis can be done in a very simple way. This note is based on the note with the same title from the same author, ADN-280, 2015.

Learning Objective

This note can be used to illustrate how NPV can be applied to highly uncertain investment projects.

Keywords

Investment projects Net present value at risk (NPVAR) Value at risk (VAR)