The Business

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Well as to the merits this method is the high degree of formalization. 4. Risk assessment of the company for the purposes of assessing the business risk should be defined as the degree of uncertainty associated with obtaining the expected future income, other words, this risk of failure (rejection) of the planned amount of expected future income or non-realization of risk prediction. At a certain level of expected future income market will pay for more business in the event that if the probability of higher income. In other words, a certain level of expected future profits (or cash flow, dividends, etc.), the lower the risk, the higher the present value of the business. There are two approaches to the treatment elements of risk assessment: an adjustment lowers the expected future flow (profits, cash flow, dividends, etc.) in order to reflect this uncertainty, accounting risk through the use of higher discount rate when evaluating the expected flow in order to reflect the required return as a reward for risk. American scientists Biermann and Schmidt convincingly shown that the theoretically more correct option account the risk element is the reduction of the expected future earnings to what they called 'adjusted to the certainty equivalent'. They recommend amending the expected flow through coefficient, which reflects the likelihood of this thread. Then there is the opportunity to apply the same discount (an indicator of the cost of capital) for the assessment of all alternative investment decisions. However, practice approach to the integration of risk by using a higher discount rate is the most commonly used.

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