FNCE chapter 10 - Project cash flow Flashcards
cash flow estimation
the analysis of a capital project is forecasting future cash flows
financial staffs role
coordinating other department efforts
incremental cash flows
the change in a firm’s net cash flow associated with purchasing an investment
problems in determining cash flows
sunk cost
opportunity cost
externalities
sunk cost
a cash outlay that already has been incurred and will not be recovered if the project is purchased
opportunity cost
the return on the best alternative use of asset
externalities
the effect that purchasing a project has on the cash flows on other projects
initial investment outlay
the incremental cash flows that occur only at the beginning of the projects life
supplemental operating cash flow
changes in cash flows that are sustained throughout the life of the asset
cash flows affect ongoing:
change in net sales
change in salaries
change in taxes
terminal cash flow
the cash flows associated with the project that occurs only at the end of a projects life when the firm disposes of the project
replacement analysis
decisions as to whether to replace an existing, still productive asset with a new asset
expansion project
decisions as to whether to add a project that is intended to increase sales
beta or market risk
the portion of an assets risk that cannot be eliminated through diversification
sensitivity analysis
key variables are changed and resulting changes in the NPV and the IRR are observed
