Basic concepts

Question 1

What are examples for real cash flows

Answer 1

Raw Material, Labour, Production costs
Finished Products
Depreciation

Question 2

What are examples for financial cash flows

Answer 2

Investments
Current depts
Sales
Current Financing
Equity
Debt

Question 3

What types of viability analysis exist ?

Answer 3

Background, strategic, resources, technical, market, Economic and financial, legal, organizational and managerial, social, environmental, political.

Question 4

What project types exist ? (related to investment aims)

Answer 4

Replacement, Racionalization or modernization, expansion, innovation or diversification, strategic.

Question 5

What other project typologies exist ?

Answer 5

By sector of activity, by size, by degree of independence, by chronology of cash flows.

Question 6

What are the four phases of a project life cycle ?

Answer 6

1 Conceptual, 2 Design, 3 Execution, 4 Start up and normal functioning.

Question 7

What are essential components of the conceptual phase ?

Answer 7

1. Opportunity Identification : SWOT, BCG, five forces etc.

2. Pre Viability and Viability studies : Analysis of alternatives (all high risk levels should be examined).

Question 8

What are essential components of the design phase ?

Answer 8

1. All work from the first phase are detailed, risks are identified.
2. All major contracts are defined and prototypes may be build

Question 9

What are essential components for the execution phase?

Answer 9

1. Plans are implemented and become reality
2. Estimates are ideally replaced by monitoring and control.
3. Construction, manufactorin and installations are done.

Question 10

What are essential components for the start up and funtioning phase?

Answer 10

1. Installation is completed
2. Final testing is done
3. Ressources are released to start the normal operation.

Question 11

What is the capital budgeting decision

Answer 11

The allocation of funds among alternatice investment opportunities

Question 12

What is a value gap?

Answer 12

The difference between the actual value and the value of a company if it was optimally managed

Question 13

What are the three principles of capital budgeting?

Answer 13

1. Select the same projects investors would select if they had the same information
2. Take all projects that would increase the shareholders wealth
   Reject all projects that would decrease s. wealth.

Question 14

What are shapiros four investment catygories?

Answer 14

Equitpment replacement
expansion to meet growth in existing products
expansion generated by new products
projects mandated by law