(11–1) Define each of the following terms:

a. Project cash flow; accounting income

b. Incremental cash flow; sunk cost; opportunity cost; externality; cannibalization;

expansion project; replacement project

c. Net operating working capital changes; salvage value

d. Stand-alone risk; corporate (within-firm) risk; market (beta) risk

e. Sensitivity analysis; scenario analysis; Monte Carlo simulation analysis 456 Part 4: Projects and Their Valuation

f. Risk-adjusted discount rate; project cost of capital g. Decision tree; staged decision-tree analysis; decision node; branch h. Real options; managerial options; strategic options; embedded options i. Investment timing option; growth option; abandonment option; flexibility option