Finance Exam #3

cash flow

nothing

report and pay tax becase you made money

it didn't depreciate enough

Different betwen a firm's future cash flows with a project and those without a project

• -a cost we have already paid or have already incurred the liability to pay
• -firm has to pay no matter what
• -not considered in investment decision

most valuble alternative that is given up if a particular investment is undertaken

spillover effects, both good and bad

• -cash flows of a new project that come at the expense of a firm's existing projects
• -because of other lines in consumer products
• -any sales lost as a result of our launching a new product might be lost anyway because of future competition

• -basic form of what if analysis
• -what happens to NPV
• -to get worst cast scenario assign least favorable value to each item (low value for units sold and price per unit and high value for costs)

freeze all variables except one and see how sensitive our estimate of NPV is to changes in one variable

exists when a positive NPV is available but we can't get needed funds

project future years operations

tax saving that results from the depreciation, deduction, calculated as depreciation multiplied by the corporate tax rate

depreciation method under US tax law allowing for the accelerated write-off of property under various classifications

• -Initial inventory increase
• -initial purchase of fixed assets