more on project analysis Flashcards

1
Q

Why might we choose to discount using real or nominal

A
  • doesnt matter
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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
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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?
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4
Q

Fixed costs and variable costs

A
  • Idea that go up with the amount of use = variable

- fixed costs = stay constant

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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
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6
Q

scenario analysis

A
  • change several variables together, but in ways that make sense
  • > e.g. creating scenarios
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7
Q

simulation analysis

A
  • get the computer to change inputs in random / pseudo random combinations
  • look at shape of distribution of output
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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
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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
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