Concept or Definition Term A computer-generated probability simulation of the most likely outcome, given a set of probable future events The most likely scenario in a capital budgeting analysis A measure of the project’s effect on the firm’s earnings variability A method to determine market risk by using the betas of single-product companies in a given industry The risk that is measured by the project’s beta coefficient B. Marston Manufacturing Co. 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 Marston Manufacturing Co. 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. No, because the cost of the warehouse is a sunk cost. Yes, because the firm could sell the warehouse if it didn’t use it for the new project. C. 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 incre
Concept or Definition Term A computer-generated probability simulation of the most likely outcome, given a set of probable future events The most likely scenario in a capital budgeting analysis A measure of the project’s effect on the firm’s earnings variability A method to determine market risk by using the betas of single-product companies in a given industry The risk that is measured by the project’s beta coefficient B. Marston Manufacturing Co. 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 Marston Manufacturing Co. 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. No, because the cost of the warehouse is a sunk cost. Yes, because the firm could sell the warehouse if it didn’t use it for the new project. C. 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 incre
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 4SBD
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1. Concepts used in cash flow estimation and risk analysis
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.
A.
|
Concept or Definition
|
Term
|
|---|---|
| A computer-generated probability simulation of the most likely outcome, given a set of probable future events | |
| The most likely scenario in a capital budgeting analysis | |
| A measure of the project’s effect on the firm’s earnings variability | |
| A method to determine market risk by using the betas of single-product companies in a given industry | |
| The risk that is measured by the project’s beta coefficient |
B. Marston Manufacturing Co. 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 Marston Manufacturing Co. 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.
No, because the cost of the warehouse is a sunk cost.
Yes, because the firm could sell the warehouse if it didn’t use it for the new project.
C. 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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