1. Concepts used in cash flow estimation Capital budgeting analycis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, answer the following questions: Which of the following is a reason cash flows may differ from accounting income? The total number of units sold will be different for accounting income and cash flows. Depreciation is a tax-deductible expense but is nok a cash outlay. Ideally, capital budgeting analyeis should talce cash flows into account Understanding the nature of projects Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects. Based on your understanding of ecparsion and replacement projects, answer the following: If a dothing store opens a second retail locition on the other side of town, this project would be consideredl What are sunk costs? project. A successful surhi chain in Hong Kong spent $500,000 to conduct a study on whether to open a locstion in the United States. The stiely eh. Ideally, capital budgeting analyeis should take cash flows into account Understanding the nature of projects Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects, Based on your understanding of ecpansion and replacement projects, answer the following: If a clothing store opens a sccond retail location on the cther side of town, this project would be considered What are tunk costs? project. A sucoessful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open a location in the United states. The study showed that the best place for the company to open their first location would be in Chicago. When conducting its capital budgeticg analyais, how ahould the coenpeny acoount for the cost of the study when estimating the amount of the initial investment that the new atore will require? The campany should indude it in the amount of the initial iivestment. The company should ignore it. The role of externahties A cell phione cornpany reoenty gave oustomers the ability to bey applications that they can download to their e