Chapter 11 Cash Flow Estimation and Risk Analysis
Definitional selt-test study for final exam Fall 2014
Terms in this set (24)
Increase in NOWC shows up as a cash outflow at time 0 then again as a cash
inflow at the end of the projects life
A cash outlay which has occurred or committed
A cash flow that represents the change in total cash flow as a result of accepting a project
cash flows are real but the cost of capital is nominal and causes this kind of bias to the NPV
cash that can be generated from owned assets, as long as they're not used for the project and must be included in analysis.
effects of a project on other parts of firm and need to be considered in incremental cash flows
occurs when intro of new product causes sales of existing products to decline and must be included in analysis.
With inflation and capital budgeting, cash flows and cost of cap need to be in or both in terms.
expected cash flow if company implements a project
for tax purposes, assets are depreciated using the
purchase price of asset, plus shipping and installation costs
three project cash flow classifications are
initial investment outlay; operating; terminal
types of risk identified in capital budgeting; market-risk,
stand-alone; corporate (within-firm)
method of risk analysis based on optimistic, pessimistic, and expected value estimates for key variables
changing one key variable and determining the effect on NPV
sensitivity analysis determines which has the greatest influence on the projects NPV
the risk an asset would have it were a firms only asset
the riskiness of project as seen by a stockholder
software that ties together sensitivities and variable probability distributions
Monete Carlo simulation
Land that is owned and could be used for a project if undertaken.
the net market value of an owned asset is an opportunity cost if used for a project
revenues which are relevant in capital budgeting decisions may have effects on other parts of the firm
MARCS accelerates depreciation because
is a accelerated depreciation methods. Net cash flow is equal to net income plus depreciation, make depreciation expense larger in early stages, and its earnings before taxes lower, lowering income taxes.
An opportunity cost existing asset should be assessed against new projects
and at a cost equal to what the company could get for the asset if they sold it.
are costs that should not e included in a capital budgeting analysis