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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
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 computergenerated 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 project's effect on the firm's earnings variability
The risk that is measured by the project's beta coefficient
Newcastle Coal Co owns a warehouse that it is not currently using. It could sell the warehouse for $ or use the warehouse in a new project. Should Newcastle Coal Co include the value of the warehouse as part of the initial investment in the new project?
No because the cost of the warehouse is a sunk cost.
Yes, because the firm could sell the warehouse if it didn't use it for the new project.
No because the company will still be able to sell the warehouse once the project is complete.
A large softdrink company currently produces regular cola and diet cola. It is considering introducing a new soft drink that tastes like regular cola but has zero calories like the diet cola. The new zerocalorie drink that tastes like regular cola is most likely to produce externality
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