1. Concepts used in cash flow estimation Capital budgeting analysis 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, complete and answer the following questions: The present value of can be used to determine the basis of a firm's value. Ideally, capital budgeting analysis 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 expansion and replacement projects, complete the following: If a clothing store opens a second retail location on the other side of town, this project would be considered project What are sunk costs? Sunk costs are In the capital budgeting analysis. The role of externalities A paper manufacturer has built a plant that meets all government mandated environmental regulations, but the plant still produces an unpleasant odor when it is being operated. Many residents in the area dislike the paper mill because of these unpleasant odors. This is an example of externality