ADMS 3530 Midterm: 7th 3530 summary notes 1

• School: York University
• Department: Administrative Studies
• Course: ADMS 3530
• Professor: King Lois

Document Summary

For most large corporations there are two stages in the investment process: the preparation of the capital bud- get, which is a list of planned investments, and the authorization process for individual projects. Investment projects should never be selected through a purely mechanical process. Managers need to ask why a project should have a positive. Good managers realize that the forecasts behind npv calculations are imperfect. Therefore, they explore the consequences of a poor forecast and check whether it is worth doing some more homework. Operating leverage, the degree to which costs are fixed. A project"s break-even point will be affected by the extent to which costs can be reduced as sales decline. If the project has mostly fixed costs, it is said to have high operating leverage. Some projects may take on added value because they give the firm the option to bail out if things go wrong or to capitalize on success by expanding.