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Financial Times Handbook of Corporate Finance, 2nd Edition by Glen Arnold

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5

ALLOWING FOR RISK IN PROJECT APPRAISAL

IntroductionWhat is risk?Adjusting for risk through the discount rateSensitivity analysisScenario analysisProbability analysisProblems with using probability analysisEvidence of risk analysis in practiceReal options (managerial options)ConclusionNotes

Case study 5.1

Two risky ventures …

One that will (probably) not pay off …

The £200 billion gamble – Wireless Telecommunications

In 2000 the telecom companies of Europe committed themselves to what may prove to be one of the biggest gambles ever. They agreed to pay £80–£100bn to purchase 3G (third generation) licenses from various European governments, enabling them to offer internet access from mobile phones.

The ‘winners’ of the auctions for licenses, ...

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