Chapter 11-Making capital investment decisions

capital rationing

Exists when a company has identified positive NPV projects, but cant find the necessary financing

positive

Capital rationing exists when the firm has ____ NPV

interaction

Sensitivity analyses does NOT consider ______ among variables

what if

The basic approach to evaluating cash flow and NPV estimates involves asking ____ ____ questions

increase false sense of security among managers is all NVP estimates are positive and it does not consider interaction among variables

Two drawbacks of sensitivity analyses

one

What are the total number of inputs that change when doing sensitivity analyses

projected future CF's, discount rate, time horizon

What is required to compute NPV

Simulation

What is the most complex technique for capital budget analyses

changing

When performing sensitivity analyses you recompute NPV several times by _____ one input variable out at a time.

sensitivity analyses

When using _____ _______ all of the variables except one are frozen in order to determine how sensitive the NPV estimates are to changes in a particular variable

scenario analyses

When we estimate the best-case worst-case, and base case CF's and calculate the coorsponding NPV's we are engaging in asking 'what if' questions and ____ ______

sensitivity

_____ analyses is a variation of of scenario analyses that pinpoints the areas where forecasting risk is severe

Breakeven analyses

analyzes the relationship between sales volume and profitability

hard rationing

occurs when business can't raise financing for aproject under any circumstances

combination

scenario analyses considers a ____ of factors while sensitivity analyses considers one variable at a time

soft rationing

units in a business are allocated a certain amount of financing