Test 3 Notes

Test 3 Notes - 1) Set NPVA = NPVB 2) -500 + 325?(1+r) + 3)...

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1) Set NPV A = NPV B 2) -500 + 325?(1+r) + … 3) Put everything on the right hand side a. 0 = (500-400) + (325-325)/(1+r) … b. (net cash flows at each point in time) 4) Calculator – enter net cash flow as normal cash flow and solve for IRR Common Types of Cash Flows Sunk costs (don’t include – not incremental) –costs that have accrued in the past Opportunity costs – costs of lost options Side effects o Positive side effects – benefits to other projects o Negative side effects – costs to other projects Changes in net working capital – the change in current assets minus the change in current liabilities – the cash you put into a business to smooth over your current accounts Financing (don’t include – not incremental) Taxes Pro Forma Statements and Cash Flow Capital budgeting relies on pro forma accounting statements Cash Flow From Assets (CFFA): the total net cash flow per period associated with a project 3 components 1. Operating Cash Flow (OCF): regularly generated cash flows from the ongoing activites of
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This note was uploaded on 05/26/2011 for the course FINA 3000 taught by Professor Laplante during the Spring '08 term at UGA.

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Test 3 Notes - 1) Set NPVA = NPVB 2) -500 + 325?(1+r) + 3)...

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