I HAVE HIGHLIGHTED IN YELLOW THE QUESTIONS TO ANSWER IN THE CHAPTER. I HAVE COPY AND PASTE CHAPTER 12. Resource: Principles of Managerial F inance , Ch. 12 Complete the following problems in Ch. 12: P-12-1 P12-3 P12-6 P12-17 P12-19 CHAPTER 12 12 Risk and Refinements in Capital Budgeting Learning Goals LG 1 Understand the importance of recognizing risk in the analysis of capital budgeting projects. LG 2 Discuss risk and cash inflows, scenario analysis, and simulation as behavioral approaches for dealing with risk. LG 3 Review the unique risks that multinational companies face. LG 4 Describe the determination and use of risk-adjusted discount rates (RADRs), portfolio effects, and the practical aspects of RADRs. LG 5 Select the best of a group of unequal-lived, mutually exclusive projects using annualized net present values (ANPVs). LG 6 Explain the role of real options and the objective and procedures for selecting projects under capital rationing. Why This Chapter Matters to You In your professional life ACCOUNTING You need to understand the risk caused by the variability of cash flows, how to compare projects with unequal lives, and how to measure project returns when capital is being rationed. INFORMATION SYSTEMS You need to understand how risk is incorporated into capital budgeting techniques and how those techniques may be refined in the face of special circumstances so as to design decision modules for use in analyzing proposed capital projects. MANAGEMENT You need to understand behavioral approaches for dealing with risk, including international risk, in capital budgeting decisions; how to risk-adjust discount rates; how to refine capital budgeting techniques when projects have unequal lives or when capital must be rationed; and how to recognize real options embedded in capital projects. MARKETING You need to understand how the risk of proposed projects is measured in capital budgeting, how projects with unequal lives will be evaluated, how to recognize and treat real options embedded in proposed projects, and how projects will be evaluated when capital must be rationed. OPERATIONS You need to understand how proposals for the acquisition of new equipment and plants will be evaluated by the firms decision makers, especially projects that are risky, have unequal lives, or may need to be abandoned or slowed, or when capital is limited. In your personal life Risk is present in all long-term decisions. When making personal financial decisions, you should consider risk in the decision-making process. Simply put, you should demand higher returns for greater risk. Failing to incorporate risk into your financial decision-making process will likely result in poor decisions and reduced wealth. YPF Argentina Seizes Oil Company from Spanish Owners YPF is the largest oil company in Argentina. After operating for more than 70 years as a state-owned enterprise, YPF was privatized in 1993 and later purchased by the Spanish firm, Repsol S.A. In the purchase agreement, the government of Argentina retained a golden share, essentially giving the government the right to outvote all other shareholders on certain matters. After Repsols acquisition of YPF, the Argentinian companys production faltered. In 2011, Argentina reported a deficit in international energy trade for the first time in almost 15 years (meaning that it imported more energy than it exported). Government officials began to point fingers at Repsol, accusing the company of mismanaging YPF and underinvesting in exploration and production in Argentina. Governors in several provinces revoked Repsols leases, an action that contributed to a 50% decline in YPF shares from February to early April. Finally, on April 16, 2012, Argentinas president, Cristina Kirchner, announced that her country would sieze a majority state in YPF from Repsol, essentially expropriating the firms assets from Repsol. Repsol would receive some compensation in exchange for their YPF shares, …
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