3. Inflation in project analysis It is often easy to overlook the impact of inflation on the net present value of the project. Not incorporating the impact of inflation in determining the value of the cash flows of the project can result in erroneous estimations. Consider the following scenario: Globex Corp. is considering opening a new division to make iGadgets that it expects to sell at a price of $12,990 each in the first year of the project. The company expects the cost of producing each iGadget to be $5,500 in the first year; however, it expects the selling price and cost per iGadget to increase by 4% each year. Based on this information, select the correct answer: Selling price in year 4: Cost per unit in year 4: If a company does not take inflation into account when analyzing a project, the expected net present value (NPV) of the project will typically be than the true NPV of the project. 4. Risk analysis in capital budgeting Projects differ in risk, and risk analysis is a critical component of the capital budgeting process. Consider the case of United Recycling Inc.: United Recycling Inc. is one of the largest recyclers of glass and paper products in the United States. The company is looking into expanding into the cardboard recycling business. The company's CFO has performed a detailed analysis of the proposed expansion The company's CFO used sophisticated software to analyze a large number of scenarios and generate estimated rates of return and risk indexes. Based on the information given, determine which of the statements is correct. The company's CFO conducted a sensitivity analysis to evaluate the project's financial model. The company's CFO used a Monte Carlo simulation to evaluate the project's financial model. Evaluating risk is an important part of the capital budgeting process. Which of the following is measured by its effect on the firm's beta coefficient? Risk-adjusted cost of capital Market, or beta, risk Stand-alone risk Corporate, or within-firm, risk is measured by the project's impact on uncertainty regarding the firm's future returns