Chapter 10

Chapter 10 - Chapter 10 Project Analysis Capital Budgeting...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10 Project Analysis Capital Budgeting Decision 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Topics Covered How Firms Organize the Investment Process Some “What If” Questions Sensitivity Analysis Scenario Analysis Break Even Analysis Real Options and the Value of Flexibility
Background image of page 2
3 Capital Budgeting Process Capital Budget - The list of planned investment projects. The Decision Process 1. Develop and rank all investment projects = The Capital Budget 2. Authorize projects based on: Outlays required by law or company policy Maintenance or cost reduction Capacity expansion in existing business Investment for new products
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Capital Budgeting Process Capital Budgeting Problems Ensuring that forecasts are consistent Eliminating conflicts of interest Reducing forecast bias Sorting the wheat from the chaff - Selection criteria (NPV and others) 4
Background image of page 4
5 How To Handle Uncertainty Sensitivity Analysis Scenario Analysis Simulation Analysis Break-Even Analysis
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Sensitivity Analysis Sensitivity Analysis - Analysis of the effects on project profitability of changes in sales, costs, etc. Example Given the expected cash flow forecasts listed on the next slide, determine the NPV of the project given changes in the cash flow components using an 8% cost of capital. Assume that all variables remain constant, except the one you are changing.
Background image of page 6
7 Sensitivity Analysis 780 5,400 - Flow Cash Net 780 flow cash Operating 330 after tax Profit 220 40% @ .Taxes 550 profit
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

Chapter 10 - Chapter 10 Project Analysis Capital Budgeting...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online