6 Integrated Valuation Under Changing Conditions Free Online FlashCards

How is net present value calculated?

Net present value discounts each period’s net cash flow to the valuation date: $NPV = \sum_{t=0}^{T} \frac{CF_t}{(1+r)^t}$, where $CF_t$ is net cash flow, $r$ is the discount rate, and $T$ is the horizon.

What should a valuation baseline document?

Document the project scope, valuation date, forecast period, cash-flow definitions, price basis, discount rate, and key assumptions.

How should real and nominal inputs be matched?

Match real cash flows with a real discount rate, or nominal cash flows with a nominal discount rate. Mixing the two misrepresents value.

Which valuation inputs can market, regulatory, technological, and economic changes affect?

Market changes may affect demand, prices, or market share; regulatory changes may affect compliance costs or timing; technology may alter capital costs or efficiency; economic changes may affect inflation, wages, or borrowing costs.

What belongs in an evidence-to-assumption chain?

Record the evidence and its date, the affected assumption, the adjustment’s direction and size, and the cash-flow periods affected. Separate observed facts from estimates and judgments.

Why check interactions between valuation changes?

Model related effects together when they arise from the same plausible conditions. Check that separate estimates do not count the same effect twice.

How should revised valuation assumptions be tracked?

Revise the model inputs and preserve the prior baseline. For each material input, record its previous and revised values, evidence, rationale, confidence, and owner.

How can a known project risk differ from broad forecast uncertainty?

A known project-specific requirement, such as a compliance cost, may be modeled as an expected cost. Broad uncertainty, such as uncertain demand growth, may be better represented by scenarios or a range.

What does sensitivity analysis reveal?

Sensitivity analysis changes one important input at a time while holding others constant. It identifies which assumptions have the greatest effect on value.

How does scenario analysis test valuation uncertainty?

Scenario analysis changes several connected assumptions together to describe coherent alternatives. Scenarios are alternatives, not predictions.

What does a switching value show?

A switching value is the assumption value at which the preferred option becomes unattractive, such as the maximum capital cost consistent with a non-negative NPV.

When is probabilistic analysis useful?

For large or complex projects, simulation can estimate an outcome distribution when input ranges and dependencies have a defensible basis. Do not present more precise probabilities than the evidence supports.