LECTURE8

LECTURE8 - Lecture 8 Lecture Strategy and Analysis in using...

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Lecture 8 Lecture 8 Strategy and Analysis in using NPV Strategy and Analysis in using NPV
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The NPV analysis then gives a precise formula for deciding whether or not to proceed with the investment project. Applying NPV analysis requires judgements about revenues , expenses , depreciation tax shields , true economic lives of plant and equipment, and the appropriate discount rate . Precision of method is not the same as precision of result . The validity of the assumptions is also critically important. garbage-in, garbage-out NPV analysis
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Judging the results of an analysis NPV is best used as part of an iterative procedure : identify potential positive NPV projects estimate the components needed for a formal NPV analysis critically examine the results Normal profits correspond to zero NPV projects. introducing a new product that may take time to duplicate using existing facilities to produce new products more cheaply using existing facilities more intensively to expand output at a lower cost creating or exploiting barriers via advertising , dealer network , etc, thereby raising costs for new entrants to market A high NPV requires impediments to competition such as :
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Exploiting legal barriers to limit or prohibit entry (example) (example) patents, licenses, zoning, environmental and safety laws Introducing new production technologies or management techniques that reduce costs and may take time to duplicate Finding new uses for existing resources, such as discovering minerals or converting an apartment block to a condominium Obtaining a change in property rights that raises the value of existing resources (example) (example)
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This note was uploaded on 12/20/2011 for the course ECON 448 taught by Professor Bejan during the Spring '06 term at Rice.

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LECTURE8 - Lecture 8 Lecture Strategy and Analysis in using...

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