Finance-Ch9
Accelerated Cost Recovery System (ACRS)
a depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications
sensitivity analysis
investigation of what happens to NPV when only one variable is changed
pro forma financial statements
financial statements projecting future years' operations
the accelerated cost recovery system.
A U.S. depreciation system that allows for more rapid depreciation under various classifications is called:
sunk cost
A cost that has already been incurred and that cannot be recouped and therefore should not be considering in an investment decision
projects future years' operations
A pro forma financial statement is a financial statement that:
a cost that has already been incurred and cannot be recouped.
A sunk cost is:
an opportunity cost.
The most valuable alternative that is forfeited if a particular investment is undertaken is called:
Operating Cash Flow
Operating Cash Flow = Earnings before interest and taxes + Depreciation - Taxes
sensitivity
The analysis of the effect that a single variable has on the net present value of a project is called _____ analysis.
scenario
The analysis of the effects that what-if questions have on the net present value of a project is called _____ analysis.
stand-alone principle
The assumption that a project will be evaluated based on its incremental cash flows is referred to as the:
erosion
The cash flows of a new project that result from a reduction in the cash flows from a firm's existing projects are called:
incremental
The change in a firm's future cash flows that results from adding a new project are referred to as _____ cash flows.
a managerial option
The opportunity to modify a project in the future is referred to as:
strategic options
The options a firm has to expand into related business products are referred to as:
hard rationing
When a firm cannot raise financing for a project under any circumstances, the firm is facing a situation known as:
managerial options
opportunities that managers can exploit if certain things happen in the future
contingency planning
taking into account the managerial options implicit in a project
scenario analysis
the determination of what happens to NPV estimates when we ask what-if questions
incremental cash flows
the difference between a firm's future cash flows with a project and those without the project
opportunity cost
the most valuable alternative that is given up if a particular investment is undertaken
forecasting risk
the possibility that errors in projected cash flows will lead to incorrect decisions
capital rationing
the situation that exists if a firm has positive NPV projects but cannot find the necessary financing
soft rationing
the situation that occurs when units in a business are allocated a certain amount of financing for capital budgeting
depreciation tax shield
the tax saving that results from the depreciation deduction, calculated as depreciation multiplied by the corporate tax rate
