FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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- Net present value and the payback period are examples of discounted cash flow methods used in capital investment decisions. Group of answer choices True Falsearrow_forwardh. What does the term “risk” mean in the context of capital budgeting; to what extent can risk be quantified; and, when risk is quantified, is the quantification based primarily on a statistical analysis of historical data or on subjective, judgmental estimates? i. 1. What are the three types of risk that are relevant in capital budgeting? 2. How is each of these risk types measured, and how do they relate to one another? 3. How is each type of risk used in the capital budgeting process? j. 1. What is sensitivity analysis? 2. Perform a sensitivity analysis on the cost per unit, unit sales, and salvage value. Assume each of these variables can vary from its base-case, or expected, value by plus or minus 10%, 20%, and 30%. Include a sensitivity graph, and discuss the results. 3. What is the primary weakness of sensitivity analysis? What is its primary usefulness?arrow_forwardIdentify “relevant” cash flows that should and should not be included in a capital budgeting analysis.arrow_forward
- Which of the following statements is FALSE? A. When evaluating a capital budgeting decision, we generally include interest expense. B. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. C. Many projects use a resource that the company already owns. O D. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.arrow_forwardHow is the estimation of relevant cash flows one of the most important parts of this capital-budgeting process?arrow_forwardNonearrow_forward
- Should interest expenses and dividend be included as an incremental cash flow in capital budgeting analysis? Please explain.arrow_forwardWhen considering the discount rate to use for discounting cash flows of a company project, we should use the average of WACC and the marginal cost of capital. T/F?arrow_forward
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