Unformatted text preview: 5. The financial manager’s goal is to maximize the wealth of shareholders. Shareholders own the entire firm, thus managers must be aware of an investment’s effects on cash flows of the entire firm. Thus, if an investment in one division of the firm will affect another division’s cash flows, this externality must be considered in order to make the correct investment decision. 6. Accelerated depreciation generally increases the NPV of an investment relative to straight-line depreciation because it accelerates the tax savings from the depreciation of assets. 7. Sensitivity analysis is performed by measuring the NPV of an investment as you alter one of the assumptions of the NPV analysis (this could be the growth rate of sales, the discount rate, the expected tax rate, etc.). This allows you to observe the sensitivity of NPV to each assumption and identify the most “influential” assumptions in your NPV analysis....
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- Spring '09
- Net Present Value, Generally Accepted Accounting Principles