Risk and Return: How to Identify, Measure, and Incorporate Into Capital Budgeting Decisions
Managers in today’s firms must have the right tools to identify relevant project risks and weigh those risks against expected returns in a competitive market. They must understand how the risk-return relationship is incorporated into capital-budgeting decisions.
This two-week course provides non-financial managers with an understanding of the key factors that enter into capital budgeting decisions so they are better able to engage in meaningful dialogue with the firm’s finance team.
Discover how the risk-return relationship is measured and incorporated into capital-budgeting decisions. Explain why risk is a critical component of the capital-budgeting decision and what its impact is on the ultimate value of the investment under consideration.
Who Should Take this Course?
This course is designed for non-financial managers who are responsible for making integrated financial decisions and need to be able to understand the interrelationship of risk and return in making capital budgeting decisions.
Participants who complete this course will be able to…
- Explain how risk enters into the capital budgeting decision and the impact it will have on the ultimate value of the investment under consideration
- Interpret what you read in the Wall Street Journal
Module 1 - The Risk-Return Relationship
- Historical Volatility of Returns
- Analyzing Returns Using the Normal Distribution
- Calculating Expected Returns and Risk
Module 2 - Factoring Risk into Capital-Budgeting Decisions
- Diversifying Risk
- Non-diversifiable vs. Diversifiable Risk
Module 3 - An Exploration of Systematic Risk
- Non-Diversifiable Risk and Beta
- Finding the Regression Line
- Systematic Risk and the Hurdle Rate
Module 4 - The Capital Asset Pricing Model
- Why Use the Capital Asset Pricing Model (CAPM)
- Numerical Values for the CAPM
- Using the CAPM
Module 5 - Examining the Weighted Average Cost of Capital
- Defining the Weighted Average Cost of Capital (WACC)
- Computing the WACC Step-by-Step
- Course Project - Interview a Financial Manager
- Scott Gibson, Professor of Finance and J.E. Zollinger Term Professor, The College of William & Mary School of Business
- Steven Carvell, Professor;Academic Director of the Center for Real Estate and Finance, School of Hotel Administration