BUSI 530 Chapter 10: Chapter 10
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Outlays required by law or company policy. The proportion of projects that promise positive npvs at the corporate hurdle rate is independent of the hurdle rate . Fixed costs: costs that do not depend on the level of output. Variable costs: costs that change as the level of output changes. Project analysis given a particular combination of assumptions: look at different but consistent combinations of variables. Simulation analysis: estimation of the probabilities of different possible outcomes. Break even analysis: analysis of the level of sales at which the project breaks even, make or break variable is sales volume. =(fixed costs + depreciation) / 1 percent of sales. A project that simply breaks even on an accounting basis gives you your money back but does not cover the opportunity cost of the capital tied up in the project. A project that breaks even in accounting terms will surely have a negative npv .
