Capital Budgeting: Estimating Cash: Incremental Project Cash Flows Given a project's expected cash flows, it is easy to calculate its NPV, IRR, MIRR, payback, and discounted payback. Cash flows are estimated based on information from various sources. There is uncertainty in a project's forecasted cash flows, and some projects are more uncertain and thus risker than others. The most critical step in capital budgeting analysis is estimation. The key is to focus on only Factors that complicate the analysis are sunk costs, opportunity costs, externalities, changes in net operating working capital, and solvage volues. Adjustments to the analysis must be made for We concentrate on expansion project analyses here but there are similarities when analyzing repiacement projacts: Give the correct response to each of the following questions. Which of the following items should be included in the capital budgeting analysis? An outlay that was incurred in the past and cannot be recovered in the future regardiess of whether the project under consideration is accepted is known as Which of the following is an example of an opportunity cost? a. A publisher introduces a new texthook which reduces sales of one of their existing textbooks. b. A firm has land that can be used in bullding a new store. If the new store is not built, the firm could sell the land for $2 million (net of taxes). c. Apple's investment in the itunes music store boosted sales of its ipod. d. The cost of a report done 2 years ago to invertigate the potential of a now plant and the permits required to build it. e. Statements a and d are both examples of opportunity costs. The correct response is Which of the following is an example of cannibalization? a. A publisher introduces a new textbook which reduces sales of one of their existing textbooks. b. A firm has lond thot can be used in building a new store. If the new store is not built, the firm could sell the land for 52 million (net of taxes). c. Apple's investment in the itunes music store boosted sales of its iPod. d. The cost of a report done 2 years ago to investigate the potential of a new plant and the permits required to build it. e. Statements c and d are both exomples of cannibalization. The correct response is