Cash Flow Estimation/Risk Analysis
B) In general, do timing options make it more or less likely that a project will be accepted today?
C) When two mutually exclusive projects are being compared, explain why the short-term project might have the higher ranking under the NPV criterion if the cost of capital is high, however, the long-term project might be considered better if the cost of capital is low.
Please note that a short-term project refers to a project whose cash flows come sooner (in earlier years) than those of a long-term project. The inquiry asks why, assuming all other factors are equal, the short-term project might have a higher ranking when the cost of capital used in the NPV calculation is high and vice versa. Associate this with the discounting process and how a low and then a high discount rate will affect the present values of cash flows of different periods.© BrainMass Inc. brainmass.com October 16, 2018, 10:31 pm ad1c9bdddf
The real options and capital budgeting is examined for cash flow estimations and risk analysis.
Real options in capital budgeting
1. What are real options? Why is it important for managers to determine the value of real options in capital budgeting decisions? Using an example explain how you can determine the value of a real option in the capital budgeting decision. In your response, include an example (use research article to answer the question).
2. Identify the tools and techniques available to mangers in the area of forecasting and planning. Discuss how you will use these tools to forecast sales and prepare a ﬁnancial plan for you company.
3. Discuss the traditional argument that the ﬁrm can lower its cost of capital and increase market value of the ﬁrm using leverage and the non-traditional argument that leverage is irrelevant. Based on the understanding of the two sides, which approach will you use if you have to make a decision on capital structure in your ﬁrm.
4. Distinguish between operating leases and ﬁnancial leases. Would you be more likely to ﬁnd an operating lease employed for a ﬂeet of aircraft or a manufacturing plant? Explain.
5. Select a company (domestic or international) who is planning to issue an IPO in next few months and evaluate their company's prospects (focus on future ﬁnancial performance), management presentations, analyst reviews, and experts' opinion to determine the potential success of the issue. In your discussion include factors such as pricing, timing, and potential for proﬁts for investors.View Full Posting Details