Risk and Uncertainty Involved in Investments

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  • Risk and Uncertainty Involved in Investments
    • All investment appraisal methods based on predictions about how much income can be generated from investments
      • Difficult to accurately predict what is going to happen in the future - businesses can't always rely on predictions
    • Market environments are always uncertain
      • Circumstances might change unexpectedly, having a negative impact on the business
      • Exchange rates could alter
      • Sales might decrease
      • Customers' tastes might change
      • Competitors may become stronger
      • Costs of raw materials could increase
    • Any change in the circumstances that businesses based their investment predictions on can mean their predictions are no longer valid
    • Every firm has a difficult attitude to risk
      • Some firms are happy to take big risks that might lead to big financial rewards
      • Other firms prefer to play it safe and go for less risky investments
    • It's often a good idea to have a set of investment criteria
      • Conditions that need to be met for an investment to be approved
      • Can include anything
        • Expected return
        • Job creation
        • Environmental targets
        • Etc. ?????????????

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