The choices for the terms for the table above are in order of rows: (1) Cannibalization, Corporate risk, Exchange-rate risk, Beta risk (2) Opportunity cost, Externalities, Real option, Expropriation (3) Initial cash flow, Incremental cash flow, Relevant cash flow, Terminal cash flow (4) Possibility analysis, Sensitivity analysis, Casino analysis, Pure-play analysis (5) Stand-alone risk, Market risk, Beta risk, Corporate risk

Choices for the last question: A negative within-firm, An environmental, A positive within-firm

1. Concepts used in cash flow estimation and risk analysis You can come across different situations in yourlife 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 conoepts. Identify the term that best corresponds to the concept or definition given Concept or Definition Term An example of extemality that can have a negative effect on a firm Creates value for a company because it gives the company the right but not the obligation to take future action to increase its cash flows The cash flow at the end of the life ofthe project A risk analysis technique that measures changes in the internal rate of retum (IRR) and net present value (NPV) as individual variables are The risk of a project without factoring in the impact of diversification The owner of Cafe Bakka is considering investing in new point-of-sale technology. He spent $10,000 on his current point-of-sale system five years ago. The new point-of-sale technology will cost $25,000, but it will dramatically improve the speed at which his counter staff will be able to take orders; it will also reduce the owner's administrative work. How should the owner accou for the cost of the current point-of-sale technology when performing his capital nt budgeting analysis to determine whether or not to purchase the new point-of-sale technology? O He should include half of the cost of the current point-of-sale system when evaluating the cost of the new point-of-sale system. O He should include the cost of the current point-of-sale system as part of the cost of the new point-of-sale system O He should ignore the cost of the current point-of-sale system when evaluating the cost of the new point-of-sale system. 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 extemal