Answer the two questions below: a) What is the purpose of a project risk analysis, and why is it important in investment decision making? b) What is the difference between accounting break-even and NPV break-even? Which will offer the higher break-even level of output, and why?

Answer the two questions below: a) What is the purpose of a project risk analysis, and why is it important in investment decision making? b) What is the difference between accounting break-even and NPV break-even? Which will offer the higher break-even level of output, and why?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section11.8: Project Risk Conclusions

Problem 2ST

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Answer the two questions below:
a) What is the purpose of a project risk analysis, and why is it important in investment decision making?
b) What is the difference between accounting break-even and NPV break-even? Which will offer the higher break-even level of output, and why?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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