9-Final

Question 1

Incremental Cash Flows

Answer 1

refer to the additional cash inflows and outflows that a business expects to receive or pay as a result of taking on a new project or investment. These are the net changes in cash flow that occur only because the project is happening

Question 2

Sunk Costs

Answer 2

money that has already been spent and cannot be recovered. It is irrelevant when making decisions about future projects

Question 3

Opportunity Cost

Answer 3

the value of the next best alternative that you give up when choosing a particular course of action. It reflects the benefits that could have been gained from choosing an alternative option

Question 4

Erosion

Answer 4

occurs when a new project or product reduces the sales or profits of an existing product or service

Question 5

Pro-forma financial statements

Answer 5

project the future financial performance of a project, helping to estimate project cash flow

Question 6

Pro-forma financial statements applied to project cash flow

Answer 6

they are calculated by estimating revenues, operating costs, capital expenditures, taxes, and depreciation

used for: estimating future cash flows, making investment decisions, evaluating project feasibility, and securing financing

Question 7

Errors in NPV

Answer 7

can stem from input errors, time-related errors, or discount rate errors

Question 8

Troubleshoot

Answer 8

these by validating assumptions, using sensitivity analysis, choosing the correct discount rate, and reviewing the timing of cash flows

Question 9

Scenario Analysis

Answer 9

looks at different possible outcomes and evaluates how those scenarios affect the project

Question 10

Sensitivity Analysis

Answer 10

tests how changes in individual variables impact the project’s outcome

Question 11

Contingency Planning

Answer 11

prepares for unexpected risks and helps develop backup plans to minimize the impact of negative events