FIN Exam 2 (Chapter 11)
true
When a business does hard rationing, the firm's DCF analysis breaks down.
NPV considers time value of money. NPV considers all the cash flows.
why NPV is considered a superior capital budgeting
accounting profit break-even point
(Fixed costs + Depreciation)/Contribution margin
forecasting risk estimation risk
The possibility that errors in projected cash flows will lead to incorrect decisions is known as _____.
sensitivity analysis
When using _______________ all of the variables except one are frozen in order to determine how sensitive the NPV estimate is to changes in that particular variable.
as low as possible
From a managerial perspective, highly uncertain projects can be dealt with by keeping the degree of operating leverage _____.
scenario; sensitivity
In simulation analysis, a combination of _____ analysis and _____ analysis is used.
repeated random drawings
in a simulation, the average NPV and the spread of NPVs around the average are determined by _____.
DOL
= 1 + FC/OCF
the necessary financing
Capital rationing exists when a company has identified positive NPV projects but can't find _____.
soft
The situation that occurs when units in a business are allocated a certain amount of financing for capital budgeting is called __________ rationing
the depreciation allowance for that period
When a project breaks even on an accounting basis, the cash flow for that period will equal _____.
variable
________ cost is equal to the quantity of output times the cost per unit
scenario
analysis involves estimating the best-case, worst-case, and base-case cash flows and calculating the corresponding NPVs.