Question: Discuss about the Analysis of Model Selection and Model Testing. Answer: Introduction: In the present case Mingalabar Inc is considering setting up a manufacturing unit in Myanmar. Capital budgeting is employed to analyze the risk and returns and thereby the financial feasibility of the project. In this respect of this project the biggest risk is that the company may not earn the returns as estimated and the project may fail (Bierman and Smidt, 2014). The risk of not earning the estimated returns may be due to the following factors: Inflation as estimated by the company in analyzing the project may increase in future resulting in reduction in the value of investments. The interest rates may rise in the future making the borrowings more costly and thus, reducing the profits earned by the company. There may be rise in the prices of the materials and labor over and above the anticipations of the company. Further, the company may not achieve the estimated demand or there be sudden hike in the competition resulting in market loss.
