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Fixed costs:

Are constant over the short-run regardless of the quantity of output produced.

Scenario analysis is defined as the:

Determination of changes in NPV estimates when what-if questions are posed.

Operating leverage is the degree of dependence a firm places on its:

Fixed costs.

Best case scenario

High revenue, low costs

Forecasting risk

How sensitive our NPV is to changes in the cash flow estimates. More sensitive, greater forecasting risk.

The base case values used in scenario analysis are the values considered to be the most:

Likely to occur

By definition, which one of the following must equal zero at the cash break-even point?

Operating cash flow.

A decrease in which one of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used and ignore taxes.

Sales price per unit.

A project has a payback period that exactly equals the project's life. The project is operating at:

The accounting break-even point.

Simulation analysis is based on assigning a _____ and analyzing the results.

Wide range of values to multiple variables simultaneously.

Scenario Analysis

how does NPV change under different cash flow scenarios

Worst Case scenario

low revenues, high costs

Degree of operating leverage

measure used to evaluate how a company's operating income changes with respect to a percentage change in its sales

Break even analysis

minimum quantity of a product in order to meet a certain objective

By definition, which one of the following must equal zero at the cash break-even point?

ocf

Degree of operating leverage(DOL)

relationship between sales and OCF, how cash flows increase if volume of sales increase

DOL

relationship between sales and operating cash flow

Accounting break even

sales volume at which NI=0

Financial break even

sales volume at which NPV=0

Cash break even

sales volume at which OCF=0

Freeze everything except one variable

sensitivity analysis

Sensitivity Analysis

subset of scenario analysis but with specific variables. How does npv change when one variable is changed at a time(like unit sales)

Variable costs can be defined as the costs that:

vary directly with sales