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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
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. Term Concept or Definition 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 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 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 A successful sushi chain in Hong Kong spent $500,000 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 half of the cost of the study in the initial investment. 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. 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 externality
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