Week 4 - Risk Analysis, Real Options And Capital Budgeting Flashcards

1
Q

Differences between Sensitivity and Scenario Analysis

A

Scenario analysis involves the evaluation of more than one variable changes rather than a single variable which sensitivity looks at

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2
Q

What is Break-even analysis

A

How low can sales go before project loses money

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3
Q

Financial Break-even is?

A

The level of sales volume that generates an NPV of zero or an IRR = opportunity cost of capital

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4
Q

What is accounting Break Even

A

Level of sales that results in a zero net profit

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5
Q

What is total variable cost formula

A

Quantity (Q) X cost per unit (v)

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6
Q

Total cost formula

A

Fixed + variable

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7
Q

What is Average Cost

A

Total costs/ number of units

This will decrease as number of units increases

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8
Q

What is Marginal Cost

A

The cost to produce one more unit

Same as variable cost per unit

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9
Q

Formula to calculate market value of a project

A

M = NPV + Opt

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10
Q

What is Option to Abandon

A

The value if demand turns out to be lower than expected

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11
Q

What is the option to delay

A

Has value if the underlying variables are changing with a favourable trend

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