more on project analysis Flashcards
1
Q
Why might we choose to discount using real or nominal
A
- doesnt matter
2
Q
- what happens if competing projects last different lengths of time
A
- Calculate NPV to infinity
- PV=PMT/r(1+r)
- work out the rate for the years
e. g. 3years, (1+0.1)^3 -1
e. g. 4years (1+0.1)^4-1
3
Q
multiple internal rates of return
A
- do project when its at a certain rate of return, and dont do if its at another?
4
Q
Fixed costs and variable costs
A
- Idea that go up with the amount of use = variable
- fixed costs = stay constant
5
Q
sensitivty analysis
A
- change one input at a time to see how sensitive the output is to the variable
- have n variables, need to do 2n+1 calculations
6
Q
scenario analysis
A
- change several variables together, but in ways that make sense
- > e.g. creating scenarios
7
Q
simulation analysis
A
- get the computer to change inputs in random / pseudo random combinations
- look at shape of distribution of output
8
Q
NPV break-even analysis
A
- How much can you push each variable until decision changes
e. g. 1mil project, runs forever and depreciates 10year straight - step 1: depreciation tax shield
- > 30%*1/10y = 30k per year
- step 2: annuity
- > PV=PMT/r(1+1/(1+r)^n)
- step 3; perpetuity of EBIT
- > 0.7*EBIT/0.1
- solve for 0
- > -1m + 184337.01 + 0.7*EBIT/0.1 =0
9
Q
Real options
A
- A right to choose to do something later based on information not yet available
- Generally pay a premium
- expand
- get smaller
- to buy an asset
- to sell an asset