1.Which of the following items should Bev's Beverage Inc. take into account when evaluating a proposed prune juice project?

a. The company spent $300,000 four years ago to renovate its Cincinnati plant.

b. The sales department estimates that apple juice sales will fall by 3% per year as a result of offering prune juice.

c. The operations department estimates that they will need $12,000 in spare parts for the new prune juicing machines.

d. All of these items need to be included in the cash flow estimation for this project.

e. Only items b and c should be included.

f. None of these items should be included.

2. Which of the following statements is most correct?

a. Estimating project cash flows is generally the most important, but also the most difficult, step in the capital budgeting process. Methodology, such as the use of NPV versus IRR, is important, but less so than obtaining a reasonably accurate estimate of projects' cash flows.

b. A project's risk is generally not incorporated into the analysis because overall the riskiness of projects will "average out".

c. Some firms consider risk by adding and subtracting risk factors to the expected return.

d. None of these statements are correct.