relevant CF include what
cash flows that will only occur if the project is accepted.
Relevant Cash Flows: Incremental Cash Flow for a Project = what
Corporate cash flow with the project.
Minus.
Corporate cash flow without the project
for relevant cashflows, are sunk costs included
no
for relevant CF, is financing costs included
no
for relevant CF, what is included
opportunity costs, side effects/ erosion, net working capital, and tax effects
what do pro forma financial statements do
project future CF
CFFA = what
operating CF - net capital spending - change in net working capital
NFA declines by amount of what each year
depreciation
sales recorded when according to GAAP
when they’re made
COGS recorded when based on GAAP
when the corresponding sales are made, whether suppliers paid yet or not
scenario analysis examines what
worst case, base case, and best case
problem with scenario analysis
considers only a few possible outcomes
sensitivity analysis shows what
how changes in an input variable affect NPV or IRR
capital rationing occurs when
a firm or divisions has limited resources
soft rationing is what
limited resources are temporary, often self imposed.
hard rationing is what
capital will never be available for this project
2 key lessons from capital market history
reward for bearing risk, greater the potential reward, the greater the risk
total dollar return is what
return on an investment measured in dollars
dollar return =
dividends + capital gains
capital gains =
price received - price paid
total percent return =
return on an investment measured as a percentage of the original investment
percent return =
dollar return/dollar invested
risk free rate is what
rate of return on a diskless investment
what investments are considered risk free
treasury bills
