tailieunhanh - Lecture Fundamentals of corporate finance (3/e): Chapter 12 - Robert Parrino, David S. Kidwell, Thomas Bates

Chapter 12, evaluating project economics and capital rationing. Corporations must cope with fluctuations in interest rates, commodity prices, and exchange rates. This chapter discusses how they do it, with particular attention paid to financial instruments such as futures contracts, options, and swap agreements. | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 12: Evaluating Project Economics Learning Objectives Explain and demonstrate how variable costs and fixed costs affect the volatility of pretax operating cash flows and accounting operating profits Calculate and distinguish between the degree of pretax cash flow operating leverage and the degree of accounting operating leverage Define and calculate the pretax operating cash flow and accounting operating profit break-even points and the crossover levels of unit sales for a project Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Define the economic break-even point and be able to calculate it for a project Define sensitivity analysis, scenario analysis, and simulation analysis and describe how they are used to evaluate the risks associated with a project Copyright© 2015 John Wiley & Sons, Inc. 4 Variable Costs, Fixed Costs, and Project Risk Variable costs are those costs that vary directly with the number of unit sold In contrast, fixed costs do not vary with unit sales, at least in the short run A project with a higher proportion of fixed costs will have cash flows and accounting profits that are more sensitive to changes in revenues Pre-tax Operating Cash Flow EBITDA is often called pretax operating cash flow because it equals the incremental pretax cash operating profits from a project Equation Cost Structure and Sensitivity Comparing the sensitivity of EBITDA to changes in revenue helps understand the risks and returns of different decision alternatives Distinguishing between fixed and variable costs enables us to calculate the sensitivity of EBITDA to changes in revenue Exhibit shows how EBITDA is more sensitive to changes in revenue with the automated production process than with the manual process The reason for the difference is that more of the total costs are fixed with the . | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 12: Evaluating Project Economics Learning Objectives Explain and demonstrate how variable costs and fixed costs affect the volatility of pretax operating cash flows and accounting operating profits Calculate and distinguish between the degree of pretax cash flow operating leverage and the degree of accounting operating leverage Define and calculate the pretax operating cash flow and accounting operating profit break-even points and the crossover levels of unit sales for a project Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Define the economic break-even point and be able to calculate it for a project Define sensitivity analysis, scenario analysis, and simulation analysis and describe how they are used to evaluate the risks associated with a project Copyright© 2015 John Wiley & Sons, Inc. 4 Variable Costs, Fixed