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 cash flows can be used to determine the basis of a firm's value Ideally, capital budgeting analysis should take cash flows into account on a monthly basis on an annual basis exactly when they occur Understanding the nature or 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: A rental car company bought a new fleet of midsize cars and sold off its old midsize cars because they had too many miles on them. Which type of project would this be considered? O A replacement project O An expansion project What are sunk costs? Alexander Industries owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Alexander Industries include the value of the warehouse as part of the initial investment in the new project or treat the value of the warehouse as a sunk cost? No, treat the value of the warehouse as a sunk cost O Yes, include the value of the warehouse as part of the initial investment in the new project 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