Concept or Definition

Term

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

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 the best place for the company to open its first location would be in Chicago. When conducting its capital budgeting analysis, how should the com account for the cost of the study when estimating the amount of the initial investment that the new store will require?

The company should ignore the cost of the study.

The company should include the cost of the study in the amount of the initial investment.

The company should include half of the cost of the study in the initial investment.

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.