The higher the quality of the information in the first place, the more accurate your NPV calculations will be.
Another way to deal with uncertainty is to make conservative estimates. A project that only has a positive NPV under ideal scenarios is not generally a worthwhile project. The scenarios upon which the decision is made should be less-than-ideal case scenarios. Conservative estimates of future cash flows should be used, as should a high hurdle rate. This should be related to the market, not simply be plucked from the air, or generated strictly on the basis of internal considerations. By planning for a poor scenario, only the projects with the highest likelihood of success will be undertaken. Therefore, if adverse conditions occur, the project still has a good chance to deliver a positive net present value.
In addition, the additional costs associated with adverse conditions should be considered and built into the projections. Risk management, contingency planning and disaster recovery should all be included in the cash flow analysis, weighted to reflect the risk of those funds needing to be spent. The risks must be fully analyzed for the impact and the odds of that impact being incurred.
The company should also safeguard against any negative conditions that it can reasonably expect. For example, the odds of a negative circumstance occurring might be low, but the damage done if it does occur can be high. In a case like...
WACC Cost of Capital for Goff Computers The 10Q book value debt for Dell was $6,430,000,000. The 10Q book value equity for Dell was $8,663,000,000. The 10K book value debt for Dell was $5,146,000,000. The 10K book value equity for Dell was $7,766,000,000. What is the most recent stock price listed for Dell? What is the market value of equity, or market capitalization? 30.95B How many shares of stock does Dell have outstanding? 18,703,176 What is
Fist, the WACC depends on the capital budget. A company calculates the retained earnings breakpoint, or the capital raised beyond which new stock must be issued, and compares it to the capital budget. A capital budget smaller than the breakpoint would use the lower cost retained earnings and therefore a lower WACC. A capital budget higher than the breakpoint would use a higher cost of equity, and would result
Crown Cork & Seal Crown Cork and Seal What do you think of Connelly's industrial strategy, financial policy & performance? Connelly's strategy was ahead of its time. This is because he saw the changes that were occurring early and made adjustments to the business model of the firm. From the 1960s to the 1980s, this helped Crown Cork & Seal to adjust with demand from customers. His financial policy was designed to reduce
Long-Term Financial Planning FedEx Corporation FedEx Corporation was established in 1971 and the company has four distinct business segments that include FedEx Express, FedEx Ground, FedEx Office and FedEx Freight. Over the years, the company has obtained 6-year of CAGR (compounded annual growth of 5%). However, the company is likely to obtain similar CAGR of 5.9% over the next 8 years based on current economic environment. (FedEx Corporation .2010. The WACC (weighted average
The market structure of Turkey is quite different from that of the UK. The cultural composition of Turkey is not a guarantee of making proportional sales. The reasons for the low performance of the company's product could as well reverberate in Turkey. If the UK market that the company is accustomed to has failed to yield expected returns, the viability of the company's product in Turkey is doubtful. However,
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