FIN Exam 2 (Chapter 11)

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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.


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