boken kap 8 del 1 Flashcards
What is:
NPV
EAC
t_c?
NPV = Net present value
EAC = Equivalent annual cost
t_c = Corporate tax rate
- What is sensitivity analysis in the context of NPV calculations?
It examines how sensitive a particular NPV calculation is to changes in underlying assumptions.
- What are the three scenarios typically used in sensitivity analysis?
Pessimistic, best/expected, and optimistic.
- How does standard sensitivity analysis work?
It varies one input at a time while assuming all other inputs remain constant.
- What are two drawbacks of sensitivity analysis?
1) It may create a false sense of security for managers. 2) It treats each variable in isolation, even though they are likely related.
- What is the key difference between sensitivity analysis and scenario analysis?
Scenario analysis considers multiple variables together, while sensitivity analysis varies one input at a time.
- How can sensitivity analysis help in decision-making?
It shows whether the NPV analysis should be trusted and identifies where more information is needed.
- What does break-even analysis determine?
The sales needed to break even.
- How is the break-even point calculated?
By determining the difference between sales price and variable cost (pre-tax contribution margin).
- Why might companies that break even on an accounting basis still lose money?
Because they lose the opportunity cost of the initial investment.
- Why is present value used in break-even analysis?
To discount future values and get a more accurate financial picture.
When shouldn´t you trust the NPV analysis based on the scenario analysis?
If many of the Scenarios gives negative NPVs.
Which information do you need more of that can be shown in a sensitivity or scenario analysis?
More information about the factors generating negative NPVs.
