RSM333H1 Study Guide - Final Guide: Finance Lease, Tax Shield, Gross Margin
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Project evaluation k reflects the o. c or required return of investors, if. O. c < required return, firm may take riskier projects) One-time exp*(1-t) + cash inflow/operating income *(1-t)* Pvaif - cash outflow*(1-t)* pvaif +pv( sv n - Operating income = (p-vc)* # of units tfc= P(in total) vc* # of units tfc. If they have different useful life, then also use. Then can use eanpv(+ #) + annual cost to compute total annual cost in comparing acquiring options. Same formula can apply: min. price charged = all. Riskiness of building new design option: (1) might not work as well as expected in far future (2) a rise of even 1% in the k can make npv become negative (3) changes in regulatory frameworks can impact profitability. Pv ( operating cf)+pv ( ccats )+pv ( ecf) c f0. Firm can"t have all projects b/c (1)unable to raise funds (2)has annual budget limits (3) exceed the s-
