20 minutes

Work in groups of four and discuss the issues below:

• In the depreciation case above, when would it be economical not to consider the equipment as an asset?
• In the inventory valuation case above, when would it be economical not to take the contract?
• In the unutilized facilities case above, when would it be economical not to sublease the space?
• In the measurement of profitability case above, when would it be economical for the owner manager to continue operating the business?

Risks and Uncertainty

Risk is a situation in which there is a possibility that actual cash flows (returns) will be less than forecasted cash flows and can be neutralized through preplanned action. Uncertainty is a situation where credible probabilities to possible outcomes cannot be assigned.

Types of risks and uncertainties include but are not limited to; Price fluctuation, Fire, Water (floods), Pests and diseases, Weather, Political/policy, and Theft. Some of the strategies for mitigation against risk and uncertainty may include insurance, planning, diversification, adoption of technologies, innovation, indigenous and religious knowledge etc.