ADMS 3530 Chapter 10: Project Analysis
10 Mar 2018
School
Department
Course
Professor
Document Summary
If firm demand quick results unlikely plant managers will concentrate only on npv. If variable may be necessary to conduct more research. If sales exceed expectations demand will be stronger: wages higher than forecast variable & fixed cost increase, scenario analysis, scenario analysis project analysis given particular combination of assumptions. Look at different but consistent combinations of variables: simulation analysis computer generates several hundred/thousand combinations of variables according to probability distributions specified by analyst, npv/outcomes of interest calculated for each combination. Just because break even =/= acceptable investment: consider time value must look for profit, npv break even analysis. 5. 45 leverage 1% drop in sales = 5. 45% drop in profit: greater dol greater sensitivity of profits. Real options & value of flexibility: option to expand, helpful decision tree diagram of sequential decisions & possible outcomes, figure 10. 3 p. 340. Invest if positi(cid:448)e npv / do(cid:374)"t if (cid:374)egati(cid:448)e npv: real options options to invest in/modify/dispose capital investment project.
