Robert Montoya

October 6, 2010

Case 14-Robert Montoya (A)

1. Incremental Cash Flow: The additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company's cash flow will increase with the acceptance of the project.

No, the cash flow statement should NOT include interest expense. The return required by the investors is already accounted for in the 10% WACC.

2. No, I don’t think the $300,000 rehabilitation cost should be applied to the wine project. Like the case stated, they would have had to spend the money anyway to fix the building issues. This cost should have already been analyzed/applied in the life cycle cost when they first obtained the building.

3. In this case, $30,000 would be included in the analysis as potential rent revenue. If the project is taken on and they do not rent out the site, the potential rent revenue could be shown as lost rent revenue on the P/L.

Case 15-Robert Montoya (B)

4. Scenario analysis changes more than one variable at a time, it also introduces probabilities of change in key variables. This way we can see combined effect of the changes in variables. You can see the project’s stand alone risk, though limited by the fact that it only takes a few NPV’s amongst an infinite number of outcomes.

5. Monte Carol simulation brings together sensitivities and probability distribution. Though in this case, the computer picks random values for each variable, then combines those values and calculates the NPV. That process is repeated again and again. Then you get the mean that is used to measure the NPV and the standard deviation that is used to measure risk. Along with being more complex than Scenario analysis, it fixes the issue with Scenario analysis as substantially increasing the number of variables changed. Conceptually the Simulation analysis is very simple to understand.

Case 18-Alaska Oil

1. They should use this list to...