Management and Organizational Studies 1023A/B Lecture Notes - Lecture 11: Net Income, Capital Budgeting, Operating Cash Flow

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1023A/B
• Professor: Christina Maco

Document Summary

Evaluating npv estimates: two situations when dcf analysis could lead to positive npv. It really does have a positive npv: the estimation could be inaccurate. If alternative scenarios are similar, gives some confidence with proceedings with the project. It substantial amount of scenarios look bad, degree of forecasted risk is higher (need further investigation: to get the worst case, give least favourable values to each item (low units sold, high costs) D = depreciation q = total units sold t = tax rate. Vc = variable costs net income = 0 = (s - vc - fc - d) x (1 -t) S - vc - fc - d = 0. P x q - v x q = fc + d (p - v) x q = fc + d. Q = (fc + d) / (p - v: often what determines success of expansion is sales volume.