Exam 4

• the IRR of a project cannot change, the required return of a project can change and therefore NPV can change
• relevant cash flows for a capital budgeting project are incremental cash flows
• project externalities can be good or bad
• opportunity costs must be included in a project if a company resource is being used (land or building) for a project that could otherwise be sold
• shipping and installing costs will affect the initial cash flow for a project and must be included in the depreciable amount of the asset
• if there is an increase or decrease in NWC at beginning of a project then the opposite will occur at the end of the project (decrease or increase)
• do not include sunk costs when evaluation a capital budgeting project
• interest expense isn't included when coming up with OCF's for a project
• investing and financing decisions are kept separate
• FCF final year = OCF + NOWC + ATSV
• initial investment = -CAPEX - NOWC - opp cost
• for graph, NPV lies on X axis and IRR lies on Y axis
• multiple IRRs can only occur if the signs of the cash flows change more than once
• a project can have multiple IRRs if it is independent
• the greatest amount of MIRR's a project is one
• the IRR calculation is independent of the project's cost of capital