1. Concepts used in cash flow estimation and risk analysis You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given. Term Concept or Definition A computer-generated probability simulation of the most likely outcome, given a set of probable future events The most likely scenario in a capital budgeting analysis A measure of the project's effect on the firm's earnings variability The risk that is measured by the project's beta coefficient The owner of Cafe Bakka is considering investing in new point-of-sale technology. He spent $10,000 on his current point-of-sale system five years ago. The new point-of-sale technology will cost $25,000, but it will dramatically improve the speed at which his counter staff will be able to take orders; it will also reduce the owner's administrative work. How should the owner account for the cost of the current point-of-sale technology when performing his capital budgeting analysis to determine whether or not to purchase the new point-of-sale technology? He should include the cost of the current point-of-sale system as part of the cost of the new point-of-sale system He should include half of the cost of the current point-of-sale system when evaluating the cost of the new point-of-sale system, He should ignore the cost of the current point-of-sale system when evaluating the cost of the new point-of-sale system. A large soft-drink company currently produces regular cola and diet cola. It is considering introducing a new soft drink that tastes like regular cola but has zero calories like the diet cola. The new zero-calorie drink that tastes like regular cola is most likely to produce th 12- Assignment - Cash Flow Estimation and Risk Analysis WUM LUVCU U U Luv ry Term Concept or Definition A computer-generated probability simulation of the most likely outcome, given a set of probable future events The most likely scenario in a capital budgeting analysis A measure of the project's effect on the firm's earnings variability The risk that is measured by the project's beta coefficient The owner of Caf Bakka is considering investing in new point-of-sale technology. He spent $10,000 on his current point-of-sale system five years ago The new point-of-sale technology will cost $25,000, but it will dramatically improve the speed at which his counter staff will be able to take orders; it will also reduce the owner's administrative work. How should the owner account for the cost of the current point-of-sale technology when performing his capital budgeting analysis to determine whether or not to purchase the new point-of-sale technology? He should include the cost of the current point-of-sale system as part of the cost of the new point-of-sale system. He should include half of the cost of the current point-of-sale system when evaluating the cost of the new point-of-sale system. He should ignore the cost of the current point-of-sale system when evaluating the cost of the new point-of-sale system. A large soft-drink company currently produces regular cola and diet cola. It is considering Introducing a new soft drink that tastes like regular cola but has zero calories like the diet cola. The new zero-calorie drink that tastes like regular cola is most likely to produce externality Grade It Now Save & Continue Continue without saving
