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Unformatted text preview: accruals, thus increasing its net operating working capital. Since this increase must be financed, it is included as an outflow in Year 0 of the analysis. At the end of the projects life, inventories are depleted and receivables are collected. Thus, there is a decrease in NOWC, which is treated as an inflow. 12-6 Simulation analysis involves working with continuous probability distributions, and the output of a simulation analysis is a distribution of net present values or rates of return. Scenario analysis involves picking several points on the various probability distributions and determining cash flows or rates of return for these points. Sensitivity analysis involves determining the extent to which cash flows change, given a change in one particular input variable. Simulation analysis is expensive. Therefore, it would more than likely be employed in the decision for the $200 million investment in a satellite system than in the decision for the $12,000 truck....
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- Spring '08
- Cost Of Capital