# 2-27 Notes BF - specific variable o Capital Rationing...

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2/27/08 Business Finance Notes Steps to finding NPV o Find CFFA for all years Find OCF, ∆(NWC), NCS OCF Income Statement Table 1 OCF, ∆NWC, NCS Table 2 CFFA=OCF-∆NWC-NCS OCF= Revenue – Costs + taxes (See Lecture 8 Power point (WebCT) for sample problems) o If projects run for separate years, find the “per-year” costs (EAC = equivalent annual costs) Take overall value Set as Annuity problem, w/ total value= to the NPV (see notebook 2/27) Project Evaluation o Scenario Analysis Every time you do an NPV Analysis, Consider: Best Case Worst Case Measure of the range of possible outcomes Best and worst case are not necessarily probable o Sensitivity Analysis What happens to NPV when we vary one variable at a time This is a subset of scenario analysis where we look at the effect of a

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Unformatted text preview: specific variable o Capital Rationing Capital Rationing occurs when a firm or division has limited resources Soft Rationing o The limited resources are temporary, often self-imposed Hard Rationing o Capital will never be available for this project The profitability index is a useful tool when a manager is faced with soft rationing o Break-Even Analysis Common tool for analyzing the relationship between sales volume and profitability There are three common break-even measures Accounting Break-even o Sales volume at which net income = 0 Cash break-even o Sales volume at which operating cash flow = 0 Financial break-even o Sales volume at which net present value = 0...
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## This note was uploaded on 04/07/2008 for the course BA 3341 taught by Professor Polkovnichenko during the Spring '08 term at University of Texas at Dallas, Richardson.

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2-27 Notes BF - specific variable o Capital Rationing...

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