FINE 2000 Chapter Notes - Chapter 10: Net Present Value, Opportunity Cost, Operating Leverage
23 Apr 2016
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Document Summary
Capital budget: list of planned investment projects. The firm"s capital investment choices should reflect both bottom-up and top-down process capital budgeting and strategic planning, respectively. The annual budget is important because it allows everybody to exchange ideas before attitudes have hardened and person commitments have been made. Valuing capital investment oppurtunies is hard enough when you can do the entire job yourself. In most firms, however, capital budgeting is a cooperative effort, and this brings with it some challenges. Sensitivity analysis: analysis of the effects of changes in sales, costs, and so on, on profit profitability. Fixed costs: costs that do not depend on the level of output. Variable costs: costs that change as the level of output changes. Scenario analysis: project analysis given a particular combination of assumptions. Simulation analysis: estimation of the probabilities of different possible outcomes for example, from an investment project. Break-even analysis: analysis of the level of sales at which the company breaks even.
