Management and Organizational Studies 3311A/B Chapter Notes - Chapter 9: Discount Window, Net Income, Controlled Burn

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3311A/B
• Professor: Robert Pilling

Document Summary

Chapter 9 :risk analysis, real options, and capital budgeting. To calculate the accounting breakeven, we first need to find the depreciation for each year. Qa = (,000 + ,500) / ( ) Qa = 58,781 units: we will use the tax shield approach to calculate the operating cash flow, ocf. Ocfbase = [(price variable cost) sales units fixed cost] (1 tc) + tc depreciation. Ocfbase = [( ) 75,000 ,000] (0. 65) + 0. 35 (,500) Now we can calculate the npv using our base-case projections. There is no salvage value or nwc, so the npv is: To calculate the sensitivity of the npv to changes in the quantity sold, we will calculate the npv at a different quantity. Ocfnew = [( ) (80,000) ,000] (0. 65) + 0. 35 (,500) So, the change in npv for every unit change in sales is: Npv/ s = (,001. 55 ,342. 27) / (75,000 80,000) If sales were to drop by 500 units, then npv would drop by: