estimation. The key is to focus on only -Select- . Factors that complicate the a
ID: 2763126 • Letter: E
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estimation. The key is to focus on only -Select- . Factors that complicate the analysis are sunk The most critical step in capital budgeting analysis is -Select- costs, opportunity costs, externalities, changes in net operating working capital, and salvage values. Adjustments to the analysis must be made for-Select-. We concentrate on expansion project analyses here but there are similarities when analyzing replacement projects -estimation. The key is to focus on only | Select- Give the correct response to each of the following questions. Which of the following items should be included in the capital budgeting analysis? Select An outlay that was incurred in the past and cannot be recovered in the future regardless of whether the project under consideration is accepted is known as Select Which of the following is an example of an opportunity cost? a. A publisher introduces a new textbook which reduces sales of one of their existing textbooks. b. A firm has land that can be used in building 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 investigate the potential of a new plant and the permits required to build it e. Statements a and d are both examples of opportunity costs The correct response is i -Select- . 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 land that can be used in building 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 investigate the potential of a new plant and the permits required to build it e. Statements c and d are both examples of cannibalization The correct response is -Select-Explanation / Answer
1. Cash Flow. (In Capital Budgeting analysis, we should always consider the cash flows from a project and not the net income or accounting income).
2. Incremental Cash Flows. (It refers to the additional operating cash flow that we receive from taking on a new project. A positive incremental cash flow means that the company's cash flow will increase with the acceptance of the project.)
3. Inflation. (The rate of inflation must be adjusted in capital budgeting analysis to get nominal and effective interest rates).
4. Opportunity Cost. (An opportunity cost is the cost of an investment alternative that must be forgone in order to undertake another alternative).
5. Sunk Cost. (A sunk cost is a cost that has already been incurred in the past and cannot be recovered in the future.)
6. b. (An opportunity cost is the cost of an investment alternative that must be forgone in order to undertake another alternative).
7. a. (Cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.)
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