1.Changes in balance sheet accounts such as inventory are not included in a capital budgeting analysis.

1. True
2. False

2.Which of the following isNOTa relevant cash flow and thus shouldNOTbe reflected in the analysis of a capital budgeting project?

1. Changes in net operating working capital.
2. Shipping and installation costs for machinery acquired.
3. Side cash effects to existing business
4. Opportunity costs.
5. Sunk costs that have been expensed prior to time 0

3.Net Working Capital should be considered in project cash flows because

A.They represent expenditures on plant, property, and equipment

B.They are sunk costs

C.Firms must depreciate working capital using straight-line method

D.Firms invest cash in short-term assets (like inventory) to produce finished goods

E.Net Working Capital should not be considered in project cash flows.

4.Conducting scenario analysis in capital budgeting helps managers see the:

A.impact of an individual variable on the outcome of a project.

B.potential range of NPV outcomes for a proposed project.

C.possible range of market prices for their stock over the life of a project.

5.Which of the following statements about Monte Carlo simulation isFALSE?

A.Monte Carlo simulation relies on computer power

B.Monte Carlo simulation can simultaneously deal with multiple variables

C.Monte Carlo simulation is particularly useful in industries of high risk

D.Monte Carlo simulation usually considers less cases compared to a regular scenario