大连海事,财务管理研究生公司理财Chapter_11.ppt

11 Project Analysis and Evaluation Key Concepts and Skills Understand forecasting risk and sources of value Understand and be able to do scenario and sensitivity analysis Understand the various forms of break-even analysis Understand operating leverage Understand capital rationing Chapter Outline Evaluating NPV Estimates Scenario and Other What-If Analyses Break-Even Analysis Operating Cash Flow, Sales Volume, and Break-Even Operating Leverage Capital Rationing Evaluating NPV Estimates NPV estimates are just that – estimates A positive NPV is a good start – now we need to take a closer look Forecasting risk – how sensitive is our NPV to changes in the cash flow estimates; the more sensitive, the greater the forecasting risk Sources of value – why does this project create value? Scenario Analysis What happens to the NPV under different cash flows scenarios? At the very least look at: Best case – high revenues, low costs Worst case – low revenues, high costs Measure of the range of possible outcomes Best case and worst case are not necessarily probable, but they can still be possible New Project Example Consider the project discussed in the text The initial cost is $200,000 and the project has a 5-year life. There is no salvage. Depreciation is straight-line, the required return is 12% and the tax rate is 34% The base case NPV is 15,567 Summary of Scenario Analysis Sensitivity Analysis What happens to NPV when we vary one variable at a time This is a subset of scenario analysis where we are looking at the effect of specific variables on NPV The greater the volatility in NPV in relation to a specific variable, the larger the forecasting risk associated with that variable and the more attention we want to pay to its estimation Summary of Sensitivity Analysis for New Project Simulation Analysis Simulation is really just an expanded sensitivity and scenario analysis Monte Carlo simulation can estimate thousands of possible outcomes based on conditional probability distrib