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Course PaperNameCourseTutor’s NameDateWhat Determines Project Risk and Present ValueOne of the most demanding decisions in capital investment decisions is the difficulty posed by assumptions and their impact on the project. Assumptions inherently have a degree of uncertainty and taken together often have a high degree of uncertainty. The elements of uncertainty translate into project risk. Therefore, the key determinant of project risk is future uncertainties. When funds are invested in a capital project, the funds immediately decline in value because liquidity of an asset affects its value. This is because transforming funds invested in a project into liquid wealth creates transaction cost, opportunity cost, and risk. From a cashflow, perspective cash flows in the past are sunk and future cash flows are not in hand, therefore the business can only make expenditure and investment choices on the cash on hand. In short, the investor is separated from liquidity thus risk and Net Present Value of a project are related because of future uncertainty whether cash flows will be received and how much those cash flows will be worth when