Changes in net operating working capital can be excluded from a project's cash flows because the funds will be recaptured at the conclusion of the project. OA company that uses accelerated depreciation will have higher net income in the early years and lower net income in the later years, all other things held constant. O The ability to abandon a project if cash flows are lower than expected can have value irrespective of whether the project is of higher or lower than average risk. O Proper analysis of project's cash flows to determine its NPV requires that those cash flows include both opportunity costs and sunk costs. O Monte Carlo simulation can provide valuable information about the risk of a project's cash flow, such as the standard deviation of the cash flow, but it cannot tell us anything about the expected cash flow.
Changes in net operating working capital can be excluded from a project's cash flows because the funds will be recaptured at the conclusion of the project. OA company that uses accelerated depreciation will have higher net income in the early years and lower net income in the later years, all other things held constant. O The ability to abandon a project if cash flows are lower than expected can have value irrespective of whether the project is of higher or lower than average risk. O Proper analysis of project's cash flows to determine its NPV requires that those cash flows include both opportunity costs and sunk costs. O Monte Carlo simulation can provide valuable information about the risk of a project's cash flow, such as the standard deviation of the cash flow, but it cannot tell us anything about the expected cash flow.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Changes in net operating working capital can be excluded from a project's cash flows because the
funds will be recaptured at the conclusion of the project.
OA company that uses accelerated depreciation will have higher net income in the early years and lower
net income in the later years, all other things held constant.
O The ability to abandon a project if cash flows are lower than expected can have value irrespective of
whether the project is of higher or lower than average risk.
O Proper analysis of project's cash flows to determine its NPV requires that those cash flows include
both opportunity costs and sunk costs.
O Monte Carlo simulation can provide valuable information about the risk of a project's cash flow, such
as the standard deviation of the cash flow, but it cannot tell us anything about the expected cash flow.
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