BADM
710
-
Chapter
7
Accounting
vs.
Financial
Break-even
-
ANS--
Both
are
different
in
example
273
(Accounting)
vs.
322(NPV)
units
-
Accounting
break-even
units
always
<
NPV
break-even
units
(WHY?)
-
Accounting
break-even
subtracts
depreciation
which
understates
the
true
cost
of
recovering
the
initial
investment;
it
does
not
recover
the
costs
tied
to
the
initial
investment
-
A
project
that
breaks-even
on
accounting
terms
will
have
a
negative
NPV
ACCOUNTING
BREAK-EVEN
UNITS
=
A
NEGATIVE
NPV
Break-even
Analysis
-
ANS--
Analysis
of
the
level
of
sales
at
which
a
project
would
earn
zero
profit/break-even
Contribution
Margin
-
ANS--
Amount
that
each
additional
sale
contributes
to
the
profit
of
the
whole
project
-
Price
-
Variable
Cost
=
Contribution
Margin
Fixed
Costs
-
ANS--
A
cost
that
is
not
dependent
on
the
amount
of
goods
or
services
produced
during
the
period
Monte
Carlo
Simulation
-
ANS--
Estimation
of
the
probabilities
of
different
possible
outcomes
-
An
exercise
that
generates
possible
outcomes
for
a
project
based
on
a
model
of
the
underlying
factors
that
drive
project
performance
-
This
is
an
extension
of
a
scenario
analysis
-
Been
around
close
to
40-years
about
15%
of
companies
use
Monte
Carlo
Simulation
Real
Options
-
ANS--
The
option
to
perform
an
action
in
managing
a
business
or
part
of
a
project
Scenario
Analysis
-
ANS--
Analysis
given
a
particular
combination
of
assumptions
-
Analysis
of
the
effect
on
a
project
of
different
scenarios
with
each
scenario
involving
many
variable
changes
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