Chapter 7 Flashcards
What are two methods for choosing projects?
the net present value and the internal rate of return. these are discounted cash flows methods to asses if the future benefits are large enough to justify expenditure.
explain the net present value
The discounted cash inflows minus the discounted cash outflows. you estimate the cost and the future cash flows the project would yield. Than you discount them back to the current period.
explain the internal rate of return.
Is the discount rate that make the net present value of the investment zero.
explain real options
The application of stock option valuation methods to investments
in nonfinancial assets. Real options better account for the long-run strategic implications of a project.
What are the advantages of quantitative methods?
Provide concrete financial estimates.
Explicitly consider timing of investment and time of value of money
What are disadvantages of quantitative methods?
Only as accurate as orginal estimates of cash flows
may fail to capture strategic importance of project
They discriminate against risky and long term projects.
What are qualitative methods for assesing projects.
You can ask a couple of screening questions focused on the role of the customer, role of capabilities and the project timing and costs. Aggregate project planning framework and Q-sort
What is meant by Q-sort.
is a qualitative method of assessing projects whereby individuals rank each project under consideration according to a series of criteria. Q-sort is most commonly used to provide a format for discussion and debate.
What is conjoint analysis
survey-based statistical technique used in market research that helps determine how people value different attributes.
most common used for costumer feedback
what is data envelopment analysis (DEA)
A method of
ranking projects
based on multiple
decision criteria
by comparing
them to a hypothetical efficiency
frontier
