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1. Concepts used in cash flow estimation and risk analysis Aa Aa You can come across different situations in your life where the concepts from
1. Concepts used in cash flow estimation and risk analysis Aa Aa 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 Concept or Definition Term A computer-generated probability simulation of the most likely outcome, given a set of probable future events A method to determine market risk by using the betas of single-product companies in a given industry 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 Pure-play recreation Vegas modeling Scenario analysis Monte Carlo simulation 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 point-of-sale system 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 He should ignore the cost of the current point-of-sale system when evaluating the cost of the nevw
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