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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 decsions Consider the following situation:
The following table contains five definitions or concepts. Identify the term that best correspands to the concept or definition given.
Concept or Definition
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
A successful sushi chain in Hong Kong spent $ 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 the cost of the study in the amount of the initial investment.
The company should ignore the cost of the study.
The company should include half of the cost of the study in the initial investment.
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