Investment Risk

Abstract

Corporate management will typically develop strategies and allocate resources to increase shareholder value. Shareholders on the other hand will focus on the cash growth of their investments. As to whether there is value in any potential cash flow growth will depend on the risks associated with these investments. Investors will generally demand a higher rate of return from investments that are perceived to be relatively riskier. Corporate decisions are made in environments that are inherently risky and uncertain. The risks associated with corporate investments are found in variables such as prices, quantities, costs, competition, market share and project life-cycles. These variables can be unpredictable and result in cash flow volatility, which will therefore have an impact on any NPV calculations.