A Short-Term Forecast Is Also Called an Operating Plan

question 9

True/False

A short-term forecast is also called an operating plan.

Evaluate the value of rough estimates of probability distribution of project NPV or IRR over point estimates.

Understand and apply scenario and decision tree analysis in capital budgeting.

Recognize the significance of options in capital budgeting including expansion, abandonment, and timing options.

Distinguish between different types of analysis including scenario, sensitivity, and simulation analyses in evaluating project variables.

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Definitions:

Internal Growth Rate

The maximum growth rate a company can achieve with its existing assets without having to finance growth with external equity or debt.

Retention Ratio

The portion of net income that is retained by a company instead of being paid out as dividends to shareholders, usually expressed as a percentage.

Plowback Ratio

Also known as the retention rate, it refers to the portion of earnings that a company retains and reinvests in its operations rather than distributing as dividends.

Optimistic Assumptions

Assumptions made under the most favorable conditions, often used in forecasting or planning to predict the best-case scenario outcomes.