Chapter 10

1. Explain types of projects that require the least detailed and the most detailed analyses in the capital budgeting process.
2. Explain why the NPV of a relatively long-term project, defined as one for which a high percentage of its cash flows are expected in the distant future, is more sensitive to changes in the cost of capital than is the NPV of a short-term project.
3. When two mutually exclusive projects are being compared, explain why the short-term project might be ranked higher under the NPV criterion if the cost of capital is high, whereas the long-term project might be deemed better if the cost of capital is low. Would changes in the cost of capital ever cause a change in the IRR ranking of two such projects? Explain why or why not.

Chapter 11

1. Cash flows, rather than accounting profits, are used in project analysis. Explain why the basis for this emphasis is placed on cash flows as opposed to net income.
2. Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included.
3. Most firms generate cash inflows every day, not just once at the end of the year. In capital budgeting, should we recognize this fact by estimating daily project cash flows and then using them in the analysis? If we do not, will this bias our results? If it does, would the NPV be biased up or down? Explain your answer.

Chapter 12

1. Compare and contrast operating plan and financial plan.
2. Explain five key factors that affect a firm's external financing requirements.
3. Explain what is meant by the term "self-supporting growth rate?" How is this rate related to the AFN equation, and how can that equation be used to calculate the self-supporting growth rate? Explain.