Economics Capital Budgeting Questions
The impact of project uncertainty on capital budgeting decisions is that it increases the risk associated with the project. Uncertainty refers to the lack of knowledge or predictability about the future outcomes of a project, such as cash flows, costs, or market conditions. This uncertainty can make it difficult for decision-makers to accurately estimate the potential returns and risks of the project. As a result, they may be more cautious and conservative in their capital budgeting decisions, requiring higher rates of return or shorter payback periods to compensate for the increased risk. Additionally, project uncertainty may lead to the use of sensitivity analysis or scenario planning techniques to assess the potential impact of different outcomes and make more informed decisions.