1. Describe how a payback period is calculated, and describe the information this measure provides about a sequence of cash flows. What is the payback criterion decision rule?

2. Describe how NPV (net present value) is calculated and describe the information this measure provides about a sequence of cash flows. What is the NPV criterion decision rule?

3. Describe how the IRR (internal rate of return is calculated, and describe the information this measure provides about a sequence of cash flows. What is the IRR criterion decision rule?

4. In the context of capital budgeting, what is an opportunity cost?

5. Porche was one of the last manufacturers to enter the sports utility vehicle market. Why would one company decide to proceed with a product when other companies, at least initially, decide not to enter the market?

6. What is forecasting risk? In general, would the degree of forecasting risk be greater for a new product or a cost-cutting proposal? Why?

7. Night Shades, Inc. manufactures biotech sunglasses. The variable materials cost is $11.13 per unit, and the variable labor cost is $7.29per unit.

* What is the variable cost per unit?

* Suppose the company incurs fixed costs of $875,000 during a year in which total production is 190,000 units. What are the total costs for the year?

* If the selling price is $44.99 per unit, does the company break-even on a cash basis? If depreciation is $435,000 per year, what is the accounting break-even point?