Life Cycle Cost Methods, Project Financing Options Flashcards
What does Life Cycle Cost (LCC) analysis evaluate?
The total cost of ownership of an asset, system, or project over its entire lifespan.
Name the six components of Life Cycle Cost (LCC).
Initial Investment Costs, Operating Costs, Maintenance and Repair Costs, Replacement Costs, Salvage Value, Disposal Costs.
How is Life Cycle Cost (LCC) calculated for a software project?
LCC = Initial Development Costs (IDC) + Operation and Maintenance Costs (O&M) + Training Costs (T) + Hardware Costs (H) + Disposal Costs (D).
What is the LCC formula for a software example with $200,000 IDC, $30,000/year O&M for 5 years, $10,000 T, $50,000 H, and $5,000 D?
LCC = $200,000 + $150,000 + $10,000 + $50,000 + $5,000 = $415,000.
List five methods of project financing.
Debt Financing, Equity Financing, Hybrid Financing, Venture Capital, Leasing.
What is debt financing?
Borrowing funds from a lender with the obligation to repay with interest, e.g., loans and bonds.
What distinguishes equity financing from debt financing?
In equity financing, capital is raised by selling company shares, and investors gain ownership stakes without repayment.
Define hybrid financing.
A mix of debt and equity financing, e.g., convertible bonds and preferred stocks.
What is venture capital?
Private equity investment provided to startups or small businesses with high risk but potential for high returns.
How does leasing help in project financing?
It allows businesses to use assets without buying them, often for equipment or real estate, with lower initial costs.
Name five valuation methods for businesses or assets.
Discounted Cash Flow (DCF), Comparable Company Analysis (CCA), Precedent Transactions, Asset-Based Valuation, Market Capitalization.
What is the Discounted Cash Flow (DCF) method?
A valuation method estimating investment value based on discounted future cash flows.
How does Comparable Company Analysis (CCA) work?
It values a company by comparing its financial metrics (like P/E ratio) to similar businesses in the same industry.
What is the purpose of the Precedent Transactions method?
To analyze acquisition prices of comparable companies for insights into market trends and premiums.
Define Asset-Based Valuation.
A method that calculates value based on a company’s net assets: Total Assets - Liabilities.
