Question

Match each of the following term or concept with their corresponding definitions.

The process of analyzing potential projects. It is the planning process used to determine whether an organization's long term investments or projects are worth the funding of cash through the firm's capitalization________.

A method that discounts all cash flows at the project’s cost of capital and then sums those cash flows. The project should be accepted if the net value is positive because such a project increases shareholders’ value______.

It is defined as the discount rate that forces a project’s net present value to equal zero. The project should be accepted if the rate is greater than the cost of capital_________.

It occurs when management places a constraint on the size of the firm’s capital budget during a particular period_______.

cash outlays that have been made and that cannot be recouped__________.

A technique that shows how much a project’s NPV will change in response to a given change in an input variable, such as sales, when all other factors are held constant________.

A risk analysis technique in which the best- and worst-case NPVs are compared with the project’s base-case NPV________.

A risk analysis technique that uses a computer to simulate future events and thereby estimate a project’s profitability and riskiness__________.

It can be determined by a firm by estimating the amount of new assets necessary to support the forecasted level of sales and then subtracting from this amount the spontaneous funds that will be generated from operations_________.

It can be used to forecast asset requirements in situations in which assets are not expected to grow at the same rate as sales_________.

A. Capital budgeting B. Capital rationing C. net present value (NPV) D. Monte Carlo simulation E. Excess capacity adjustments F. Sensitivity analysis G. internal rate of return (IRR) H. Scenario analysis I. additional funds needed (AFN) J. sunk costs

Answer 1

1 capital budgeting

2 NPV

3 IRR

4 capital rationing

5 sunk costs

6 sensitivity analysis

7 scenario

8 .monte carlo

9 additional funds needed

10 excess capacity adjustments