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Finance 301-Ch.9

17 cards
  

Review for fi nance 30

Cards In This Set

Front Back
Incremental Cash Flows
The difference between a firms future cash flows with a project and those without the project
Stand alone price
The assumption that evaluation of a project may be based on the projects incremental cash flows
Sunk cost
A cost that has already been incurred and cannot be recouped and therefor should not be considered in an investment decision
Opportunity Cost
The most valuable alternative that is given up if a particular investment is undertaken.
Erosion
The cash flows of a new project that come at the expense of a firms existing projects.
Pro Forma statements
Financial statements projecting future years operations.
Depreciation tax shield
The tax saving that results from the depreciation deduction, calculated as depreciation multiplied by the corporation tax rate
Accelerated Cost Recovery System
Depreciation method under US tax law allowing the accelerated write-off of property under various classifications
Forecasting Risk
The possibility that errors in projected cash flows will lead to incorrect decisions.
Scenario Analysis
The determination of what happens to NPV estimates when we ask what-if questions
Sensitivity Analysis
Investigation of what happens to NPV estimates when only one variable is changed
Managerial Options
Opportunities that managers can eploit if certain things happen in the future. Also know as "rea" options
Contingency Planning
Taking into account the managerial options implicit in a project
Strategic Options
Options for future, related business products or strategies
Capital Rationing
The situation that exists if a firm has positive NPV projects but cannot obtain the necessary financing