week7 - Week 7 Tutorial Emily Lo Evaluation: Quantitative...

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Week 7 Tutorial Emily Lo
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Evaluation: Quantitative Factors Forecasting CFs can be split into 3 areas: 1. Initial investment outlay >> upfront cost + any increases in NOWC 2. Operating Cash Flows >> incremental CFs over the project’s life >> OCFp.a = (Sales – Cost – Dep’n)*(1-tax) +Dep’n >> OCFp.a = (Sales – Cost)*(1-tax )+ Dep’n * Tax 3. Terminal Cash Flows >> CFs occurring at the end other than OCFs >> Net Salvage value = Salvage Value – (Salvage – Book)*Tax >> eg. Returned NOWC
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Evaluation: Qualitative Factors  NPV analysis only considers quantitative factors Non-measurable/intangible factors should be taken into account as well in project selection eg: environmental consequences, corporate image, etc Consider the source of positive or negative NPV >> comparative advantage >> forecasting error
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Sources of Comparative advantage First to market with a new product or service Exclusive information/technology or patent Production cost advantage Contractual advantage Other monopoly power
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This note was uploaded on 01/09/2012 for the course FINS 1613 taught by Professor Drkhshim during the Three '10 term at University of New South Wales.

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week7 - Week 7 Tutorial Emily Lo Evaluation: Quantitative...

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