2019 Edition of Handbook On Workers Statutory Monetary BenefitsKirk Go
Published by the Bureau of Working Conditions under the Department Of Labor and Employment in 2019. The publication covers monetary benefits for workers under the Revised Rules in administering and enforcing of labor laws of the Philippines.
Business Models: Six recommendations to enable business model innovation in t...melnorman
Advances in technology have disrupted the creative marketplace. What customers value and will pay for has changed and companies who don’t evaluate their existing business models risk losing their relevance.
There is a lot of discussion around reinventing ‘business models’ and ‘strategy’ but there is a lack of clarity about what this means and even less about how to apply it.
So how does this impact the creative industries, which have undergone more change than most sectors over the last 10 years?
The part time Business Model Theme Champion role, funded by and on behalf of the Creative Industries KTN, focused on transferring current business model practice to the creative industries, using that to shape and inform business model innovation and examine how businesses can better articulate new and emergent business models.
This document is not meant as a scientific document or academic paper but a combination of a summary of my learnings from both my year’s tenure, as well as the thoughts and experiences from those who kindly attended workshops and roundtables or were consulted as experts or as leading companies in their field. My intention is to start a conversation around business model innovation in the creative and digital sectors and for the recommendations to be explored further.
Finans Yönetimi - Pegasus Finansal Değerlendirme DenemesiAhmet Coşkun
Pegasus Havayolları'na ait KAP üzerinde açıklanmış finansal tablolar ve yine Pegasus için internet üzerinde yapılmış finansal tahminlerin derlenmesi ile ortaya dökülmüş 2014 yılı finansal değerlemesidir. Ayrıca 2015 yılına ait proforma değerlemesi ve THY ile finansal karşılaştırma da sunuma eklenmiştir.
Tüm rakamlar KAP üzerinden edinilmiş olup analizler için çeşitli finans kurumlarını halka açık şirket incelemeleri baz alınmıştır. Yapılan finansal analizler ve derlemeler profesyonel olmayan ve deneme aşamasındadır.
2019 Edition of Handbook On Workers Statutory Monetary BenefitsKirk Go
Published by the Bureau of Working Conditions under the Department Of Labor and Employment in 2019. The publication covers monetary benefits for workers under the Revised Rules in administering and enforcing of labor laws of the Philippines.
Business Models: Six recommendations to enable business model innovation in t...melnorman
Advances in technology have disrupted the creative marketplace. What customers value and will pay for has changed and companies who don’t evaluate their existing business models risk losing their relevance.
There is a lot of discussion around reinventing ‘business models’ and ‘strategy’ but there is a lack of clarity about what this means and even less about how to apply it.
So how does this impact the creative industries, which have undergone more change than most sectors over the last 10 years?
The part time Business Model Theme Champion role, funded by and on behalf of the Creative Industries KTN, focused on transferring current business model practice to the creative industries, using that to shape and inform business model innovation and examine how businesses can better articulate new and emergent business models.
This document is not meant as a scientific document or academic paper but a combination of a summary of my learnings from both my year’s tenure, as well as the thoughts and experiences from those who kindly attended workshops and roundtables or were consulted as experts or as leading companies in their field. My intention is to start a conversation around business model innovation in the creative and digital sectors and for the recommendations to be explored further.
Finans Yönetimi - Pegasus Finansal Değerlendirme DenemesiAhmet Coşkun
Pegasus Havayolları'na ait KAP üzerinde açıklanmış finansal tablolar ve yine Pegasus için internet üzerinde yapılmış finansal tahminlerin derlenmesi ile ortaya dökülmüş 2014 yılı finansal değerlemesidir. Ayrıca 2015 yılına ait proforma değerlemesi ve THY ile finansal karşılaştırma da sunuma eklenmiştir.
Tüm rakamlar KAP üzerinden edinilmiş olup analizler için çeşitli finans kurumlarını halka açık şirket incelemeleri baz alınmıştır. Yapılan finansal analizler ve derlemeler profesyonel olmayan ve deneme aşamasındadır.
7.12Chapter 7 Problem 12a). Complete the spreadsheet below by esti.docxalinainglis
7.12Chapter 7 Problem 12a). Complete the spreadsheet below by estimating the project's annual after tax cash flow.b). What is the investment's net present value at a discount rate of 10 percent?c). What is the investment's internal rate of return?d). How does the internal rate of return change if the discount rate equals 20 percent?e). How does the internal rate of return change if the growth rate in EBIT is 8 percent instead of 3 percent?Facts and AssumptionsEquipment initial cost $$ 350,000Depreciable life yrs.7Expected life yrs.10Salvage value $$0Straight line depreciationEBIT in year 128,000Tax rate38%Growth rate in EBIT3%Discount rate10%Year012345678910Initial cost350,000Annual depreciation50,00050,00050,00050,00050,00050,00050,000EBIT28,00028,84029,70530,59631,51432,46033,43334,43635,47036,534Net present value @ 10%Internal rate of return
7.13Chapter 7 Problem 13In many financial transactions, interest is computed and charged more than once a year. Interest on corporate bonds, for example, is usually payable every six months. Consider a loan transaction in which interest is charged at the rate of 1 percent per month. Sometimes such a transaction is described as having an interest rate of 12 percent per annum. More precisely, this rate should be described as a nominal 12 percent per annum coumpounded monthly.Clearly, it is desirable to recognize the difference between 1 percent per month compounded monthly and 12 percent per annum compounded annually. If $1,000 is borrowed with interest at 1 percent per month compounded monthly, the amount due in one year is:F = $1,000(1.01)12 = $1,000(1.1268) = $1,126.80 This compares to F = $1,000(1+.12) =$1,120.00 for annual compounding.Hence, the monthly compounding has the same effect on the year-end amount due as the charging of a rate of 12.68 percent compounded annually. 12.68 percent is referred to as the effective interest rate. To generalize, if interest is compounded m times a year at an interest rate of r/m per compounding period. Then,The nominal interest rate per annum, or the APR = m(r/m) = r.The effective interest rate per annum,or the EAR = (1+r/m)m - 1.Consider a $100,000, 30 year, fixed-rate, 9 percent, home mortgage requiring monthly payments.a. The monthly interest rate on the mortgage is 9%/12 months = .75%. What is the APR on the mortgage?b. What is the EAR on the mortgage?c. The borrower's payment book will look something like the following. Complete the entries for the first 6 months.Outstanding Balance Beginning of MonthMonthly paymentInterest duePrincipal paymentOutstanding Balance End of MonthDate01-31$100,00002-2803-3104-3005-3106-30d. After paying on this mortgage for 15 years, what will be the remaining principal outstanding? e. Suppose after 15 years the borrower has the opportunity to refinance the remaining principal on the mortgage with a new 15-year mortgage carrying an interest rate of 7 1/8%. Refinancing will involve $250 in costs and "points.
Top of Form 1.The difference between the present value.docxamit657720
Top of Form
1.
The difference between the present value of an investment?s future cash flows and its initial cost is the:
net present value.
internal rate of return.
payback period.
profitability index.
discounted payback period.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
2.
Which statement concerning the net present value (NPV) of an investment or a financing project is correct?
A financing project should be accepted if, and only if, the NPV is exactly equal to zero.
An investment project should be accepted only if the NPV is equal to the initial cash flow.
Any type of project should be accepted if the NPV is positive and rejected if it is negative.
Any type of project with greater total cash inflows than total cash outflows, should always be accepted.
An investment project that has positive cash flows for every time period after the initial investment should be accepted.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
3.
The primary reason that company projects with positive net present values are considered acceptable is that:
they create value for the owners of the firm.
the project's rate of return exceeds the rate of inflation.
they return the initial cash outlay within three years or less.
the required cash inflows exceed the actual cash inflows.
the investment's cost exceeds the present value of the cash inflows.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
4.
Accepting a positive net present value (NPV) project:
indicates the project will pay back within the required period of time.
means the present value of the expected cash flows is equal to the project’s cost.
ignores the inherent risks within the project.
guarantees all cash flow assumptions will be realized.
is expected to increase the stockholders’ value by the amount of the NPV.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
5.
The net present value method of capital budgeting analysis does all of the following
except:
incorporate risk into the analysis.
consider all relevant cash flow information.
use all of a project's cash flows.
discount all future cash flows.
provide a specific anticipated rate of return.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
6.
What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent.
−$287.22
−$1,195.12
−$1,350.49
$204.36
$797.22
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
7.
Maxwell Software, Inc., has the following mutually exclusive projects.
Year
Project A
Project B
0
–$29,000
–$32,000
1
16,500
17,500
2
13,000
11,500
3
3,800
13,000
a-1.
Calculate the payback period for each project.
(Do not round interme ...
Capital budgeting decisions are much vital than the decisions on management of working capital as these decisions requires careful analysis of the expected costs and benefits to be derived from each capital expenditure on acquisition of land, building, equipments and for permanent additions to working capital associated with the plant expansion.
The level of investments that maximizes the present value of the firm is simultaneously determined by the interaction of supply and demand forces under conditions of uncertainty
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices.
Sheet4Assignment 1 LASA # 2—Capital Budgeting Techniques
Sheet1
Solution
:-A) Computation of WACC:-Cost of equity (Ke) will be calculated using dividend discount model which is as under:-Price of share (P0) = D1/(Ke-g)Ke = (D1/(P0*(1-f))) + gWhere,D1 = D0*(1+g)F = Flotation costKe = ((2.50*(1+6%))/(50*(1-10%))) + 6%Ke = 11.89%i) Equity financing and debt financing are two different sources of financing being used by the organizations to procure funds. Equity and debt are two different sources of financing, equity financing represents internal source of finance whereas debt financing represent external source of finance. Mixture of both is always used by the business organizations to procure funds and is most commonly known as target ratio or capital structure ratio. This ration varies from industry to industry and company and company depending upon various circumstances, equity financing can be raised only through issuing shares in market by the help of initial public offer whereas debt financing can be raise from many sources such as bonds, long term loans, money market instruments etc.Equity Financing has following advantages:1. The total cash flows generated can be used solely for investment purpose, rather than paying back the investors.2. Funds can be raised in shorter time as compared to other sources of funds.However, in equity financing, dilution of ownership easily occurs and more investors can lead to loss of Control.Cost of debt (Kd) will be calculated as follows:-Kd = Market rate of deb*(1-tax rate)Kd = 5%*(1-35%)Kd = 3.25%Debt is a more common source of finance used by most of the organizations, the reason for the same is as follows:-a. Debt is cheaper source of finance as compared to equity the reason being the cost associated with issuing the common stock like. Underwriters commission, legal expenses, various registration charges, issuing of prospectus, printing of various documents etc.b. Debt financing provide leverage to the company which will increase the Earning per Share (EPS) which in turn leads to increase in market value of share, this helps organization to maximize its market capitalization.However, if the expansion venture does not work in favour of the company, then these obligations of repayment of principal and interest may turnout to be a burden to the company. WACC = (Ke*We) + (Kd*Wd)WACC = (11.89%*70%) + (3.25%*30%)WACC = 9.30%B) Computation of NPV of project A:-Depreciation = Cost of the asset – salvage value Life of the asset = 1,500,000/ 3 = 500,000Calculation of cash flows:Revenue – 1,200,000Less Cost – 600,000Less Depreciation – 500,000Profit - 100,000Less taxes (35%) 35,000Profit after taxes .
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
Unit 8 - Information and Communication Technology (Paper I).pdfThiyagu K
This slides describes the basic concepts of ICT, basics of Email, Emerging Technology and Digital Initiatives in Education. This presentations aligns with the UGC Paper I syllabus.
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
CLASS 11 CBSE B.St Project AIDS TO TRADE - INSURANCE
237367257 question-case-study-3
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Solutions Guide: Please reword the answers to essay type parts so as to guarantee that your answer is an original. Do not submit as
your own.
It has been 2 months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been
pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the
calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive
projects. Given your lack of tenure and Caledonia, you have been asked not only to provide a recommendation but also to respond to a
number of questions aimed at judging your understanding of the capital-budgeting process. The memorandum you received outlining
your assignment follows: To: The Assistant Financial Analyst From: Mr. V. Morrison, CEO, Caledonia Products Re: Cash Flow Analysis
and Capital Rationing We are considering the introduction of a new product. Currently we are in the 34 percent marginal tax bracket with
a 15 percent required rate of return or cost of capital. This project is expected to last 5 years and then, because this is somewhat of a fad
product, be terminated. The following information describes the new project: Cost of new plant and equipment: $7,900,000 Shipping and
2. installation costs: $100,000 Unit Sales: Year 1: Units sold: 70,000 Year 2: Units sold: 120,000 Year 3: Units sold: 140,000 Year 4: Units
sold 80,000 Year 5: Units sold 60,000 Sales price per unit: $300/unit in years 1 through 4, $260/unit in year 5 Variable Cost per unit:
$180/unit Annual Fixed Costs: $200,000 Working capital requirements: There will be an initial working-capital requirement of $100,000
just to get production started. For each year, the total investment in new working capital will be equal to 10 percent of the dollar value of
sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all
working capital is liquidated at the termination of the project at the end of year 5. The depreciation method: Use the simplified straight-
line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years. A.) Should Caledonia focus on
cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows,
incremental profits, total free cash flows, or total profits? B.) How does depreciation affect free cash flows or total profits? C.) How do
sunk costs affect the determination of cash flows? D.) What is the project’s initial outlay? E.) What are the differential cash flows over
the project’s life? F.) What is the terminal cash flow? G.) Draw a cash flow diagram for this project H.) What is its net present value? I.)
What is its internal rate of return? J.) Should the project be accepted? Why or why not? K.) In capital budgeting, risk can be measured
from three perspectives. What are those three measures of a projects risk? L.) According to CAPM, which measurement of a project’s
risk is relevant? What complications does reality introduce into the CAPM view of risk, and what does that mean for our view of the
relevant measure of a project’s risk? M.) Explain how simulation works. What is the value in using a simulation approach? N.) What is
sensitivity analysis and what is its purpose? Please provide answers in excel showing the work for each answer.
a. We focus on free cash flows rather than accounting profits because these are the flows that the firm receives and can reinvest.
Only by examining cash flows are we able to correctly analyze the timing of the benefit or cost. Also, we are only interested in
these cash flows on an after-tax basis as only those flows are available to the shareholder. In addition, it is only the incremental
cash flows that interest us, because, looking at the project from the point of the company as a whole, the incremental cash flows
are the marginal benefits from the project and, as such, are the increased value to the firm from accepting the project.
b. Although depreciation is not a cash flow item, it does affect the level of the differential cash flows over the project's life because
of its effect on taxes. Depreciation is an expense item and, the more depreciation incurred, the larger are expenses. Thus,
accounting profits become lower and in turn, so do taxes which are a cash flow item.
c. When evaluating a capital budgeting proposal, sunk costs are ignored. We are interested in only the incremental after-tax cash
flows, or free cash flows, to the company as a whole. Regardless of the decision made on the investment at hand, the sunk costs
will have already occurred, which means these are not incremental cash flows. Hence, they are irrelevant.
Parts d, e, & f.
3. Section I. Calculate the change in EBIT, Taxes, and Depreciation (this become an input in the calculation of Operating Cash Flow in Section II).
Year 0 1 2 3 4 5
Units Sold 70,000 120,000 140,000 80,000 60,000
Sale Price $300 $300 $300 $300 $260
Sales Revenue $21,000,000 $36,000,000 $42,000,000 $24,000,000 $15,600,000
Less: Variable Costs 12,600,000 21,600,000 25,200,000 14,400,000 10,800,000
Less: Fixed Costs $200,000 $200,000 $200,000 $200,000 $200,000
Equals: EBDIT $8,200,000 $14,200,000 $16,600,000 $9,400,000 $4,600,000
Less: Depreciation $1,600,000 $1,600,0000 $1,600,0000 $1,600,0000 $1,600,0000
Equals: EBIT $6,600,000 $12,600,000 $15,000,000 $7,800,000 $3,000,000
Taxes (@34%) $2,244,000 $4,284,000 $5,100,000 $2,652,000 $1,020,000
Section II. Calculate Operating Cash Flow (this becomes an input in the calculation of Free Cash Flow in Section IV).
Operating Cash Flow:
EBIT $6,600,000 $12,600,000 $15,000,000 $7,800,000 $3,000,000
Minus: Taxes $2,244,000 $4,284,000 $5,100,000 $2,652,000 $1,020,000
Plus: Depreciation $1,600,000 $1,600,000 $1,600,000 $1,600,000 $1,600,000
Equals: Operating Cash Flow $5,956,000 $9,916,000 $11,500,000 $6,748,000 $3,580,000
Section III. Calculate the Net Working Capital (This becomes an input in the calculation of Free Cash Flows in Section IV).
Change In Net Working Capital:
Revenue: $21,000,000 $36,000,000 $42,000,000 $24,000,000 $15,600,000
Initial Working Capital Requirement $100,000
Net Working Capital Needs: $2,100,000 $3,600,000 $4,200,000 $2,400,000 $1,560,000
Liquidation of Working Capital $1,560,000
Change in Working Capital: $100,000 $2,000,000 $1,500,000 $600,000 ($1,800,000) ($2,400,000)
Section IV. Calculate Free Cash Flow (using information calculated in Sections II and III, in addition to the Change in Capital Spending).
Free Cash Flow:
Operating Cash Flow $5,956,000 $9,916,000 $11,500,000 $6,748,000 $3,580,000
Minus: Change in Net Working
Capital
$100,000 $2,000,000 $1,500,000 $600,000 ($1,800,000) ($2,400,000)
Minus: Change in Capital Spending $8,000,000 0 $0 0 0 0
Free Cash Flow: ($8,100,000) $3,956,000 $8,416,000 $10,900,000 $8,548,000 $5,980,000
NPV = $16,731,096
IRR = 77%
4. g. Cash flow diagram
$3,956,000 $8,416,000 $10,900,000 $8,548,000 $5,980,400
($8,100,000)
h. NPV = $16,731,096
i. IRR = 77%
j. Yes. This project should be accepted because the NPV ≥ 0. and the IRR ≥ required rate of
return.
k. First, there is the total project risk also called project standing alone risk, which is a
project’s risk ignoring the fact that much of this risk will be diversified away as the
project is combined with the firm’s other projects and assets. Second, we have the
project’s contribution to firm risk, which is the amount of risk that the project
contributes to the firm as a whole; this measure considers the fact that some of the
project’s risk will be diversified away as the project is combined with the firm’s other
projects and assets, but ignores the effects of diversification of the firm’s shareholders.
Finally, there is systematic risk, which is the risk of the project from the viewpoint of a
well-diversified shareholder; this measure considers the fact that some of a project’s
risk will be diversified away as the project is combined with the firm’s other projects,
and, in addition, some of the remaining risk will be diversified away by the
shareholders as they combine this stock with other stocks in their portfolio.
l. According to the CAPM, systematic risk is the only relevant risk for capital-budgeting
purposes; however, reality complicates this somewhat. In many instances, a firm will
have undiversified shareholders; for them, the relevant measure of risk is the project’s
contribution to firm risk. The possibility of bankruptcy also affects our view of what
measure of risk is relevant. Because the project’s contribution to firm risk can affect
the possibility of bankruptcy, this may be an appropriate measure of risk since there are
costs associated with bankruptcy.
m. The idea behind simulation is to imitate the performance of the project being evaluated.
This is done by randomly selecting observations from each of the distributions that
affect the outcome of the project, combining each of those observations and
determining the final outcome of the project, continuing with this process until a
representative record of the project’s probable outcome is assembled. In effect, the
output from a simulation is a probability distribution of net present values or internal
rates of return for the project. The decision maker then bases his decision on the full
range of possible outcomes.
n. Sensitivity analysis involves determining how the distribution of possible net present
values or internal rates of return for a particular project is affected by a change in one
particular input variable. This is done by changing the value of one input variable
while holding all other input variables constant.
4