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. Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Acme Manufacturing include the value of the warehouse as part of the initial investment in the new project? No, because the company will still be able to sell the warehouse once the project is complete. Yes, because the firm could sell the warehouse if it didn't use it for the new project. No, because the cost of the warehouse is a sunk cost. Concept or Definition Term An example of externality that can have a negative effect on a firm. The cash flow at the end of the life of the project. The cost of not choosing another mutually exclusive project by accepting a particular project. The risk of a project without factoring in the impact of diversification. A risk analysis technique that measures changes in the internal rate of return (IRR) and net present value (NPV) as individual variables are changed. \begin{tabular}{|c|c} \hline Beta risk \\ \hline Exchange-rate risk & \\ \hline Cannibalization & \\ \hline Corporate risk & \\ \hline \end{tabular} Concept or Definition Term An example of externality that can have a negative effect on a firm. The cash flow at the end of the life of the project. The cost of not choosing another mutually exclusive project by accepting a particular project. The risk of a project without factoring in the impact of diversification. A risk analysis technique that measures changes in the internal rate of return (IRR) and net present value (NPV) as individual variables are changed. Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new Should Acme Manufacturing include the value of the warehouse as part of the initial investment in the new project? No, because the company will still be able to sell the warehouse once the project is complete. Yes, because the firm could sell the warehouse if it didn't use it for the new project. a new pro Concept or Definition Term An example of externality that can have a negative effect on a firm. The cash flow at the end of the life of the project. The cost of not choosing another mutually exclusive project by accepting a particular project. The risk of a project without factoring in the impact of diversification. A risk analysis technique that measures changes in the internal rate of return (IRR) and net present value (NPV) as individual variables are changed. Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse f Pure-play analysis 2 warehouse in a new project. Should Acme Manufacturing include the value of the warehouse as part of the initial investment in Casino analysis No, because the company will still be able to sell the warehouse once the project is com Yes, because the firm could sell the warehouse if it didn't use it for the new project. No, because the cost of the warehouse is a sunk cost. Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new profect. Should Acme Manufacturing include the value of the warehouse as part of the initial investment in the new project? No, because the company will still be able to sell the warehouse once the project is complete. Yes, because the firm could sell the warehouse if it didn't use it for the new project. No, because the cost of the warehouse is a sunk cost. No, because the company will still be able to sell the warehouse once the project is complete. Yes, because the firm could sell the warehouse if it didn't No, because the cost of the warehouse is a sunk cost. A cell phone company recently gave customers the ability to buy ap iwnload to their cell phones. Allowing customers to use these applications increased cell phone sales. This is an example of externality