Introduction

Overview

In this era of advancing technology, successful managers need to make investment decisions that determine the future success of their companies by drawing systematically on the specialized knowledge, accumulated information, experience, and skills of many people. In previous lessons, the investment analyses were all considered to be made under "no-risk" conditions. In this lesson, we add in the uncertainties when evaluating an energy/mining project. The objective of investment decisions is to invest available capital where we have the highest probability of generating the maximum possible future profit. The use of quantitative approaches to incorporate risk and uncertainty into analysis results may help us be more successful in achieving this objective over the long run.

Learning Objectives

At the successful completion of this lesson, students should:

• understand how to conduct sensitivity analysis to analyze the effects of uncertainty;
• be able to conduct expected value analysis; and
• understand the risk due to natural disasters.

What is due for Lesson 6?

This lesson will take us one week to complete. Please refer to the Course Syllabus for specific time frames and due dates. Specific directions for the assignment below can be found within this lesson.

Questions?

If you have any questions, please post them to our discussion forum, located under the Modules tab in Canvas. I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.