Concepts used in cash flow estimation and risk analysis

You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation:

The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given.

Concept or Definition	Term
A computer-generated probability simulation of the most likely outcome, given a set of probable future events
The most likely scenario in a capital budgeting analysis
A measure of the projects effect on the firms earnings variability
A method to determine market risk by using the betas of single-product companies in a given industry
The risk that is measured by the projects beta coefficient

A successful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open a location in the United States. The study showed that the best place for the company to open its first location would be in Chicago. When conducting its capital budgeting analysis, how should the company account for the cost of the study when estimating the amount of the initial investment that the new store will require?

The company should include half of the cost of the study in the initial investment.

The company should ignore the cost of the study.

The company should include the cost of the study in the amount of the initial investment.

A cell phone company recently gave customers the ability to buy applications that they can download to their cell phones. Allowing customers to use these applications increased cell phone sales. This is an example of