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Part: III Investment Decisions > Making Investment Decisions Under Uncertain Co...

Chapter 15. Making Investment Decisions Under Uncertain Conditions

At times you have access to dependable, objective information as the basis for your business decisions. For example, you might know how much you must pay in interest charges for a loan that will enable you to retool a manufacturing operation. Or, you might know what it will cost to hire an employee who can perform a critical role for your company.

More frequently, though, you must make a decision without access to solid information. In this case, if you are fortunate, you can look to historical data or acquire new empirical information that bears, even if indirectly, on your decision. The appropriate analysis of that data can enable you to make probability statements about different courses of action: for example, “If we pursue Course A, the likelihood that we'll achieve an additional 10% profit is 95%. If we pursue Course B, achieving an additional 10% profit has a probability of only 45%.”


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