Given a project's expected cash flows, it is easy to calculate its NPV, IRR, MIRR, payback, and discounted payback. Cash flows are estimated based on information from various sources. There is uncertainty in a project's forecasted cash flows, and some projects are more uncertain and thus riskier than others. In this chapter, we lilustrate how project cas flows are estimated, discuss tectiniques for measuring risk, and discuss how to cheose between projects that have significantly different lives, are mutually exclusive, and can be repeated. The most critical step in capital budgeting analysis is estimation. The key is to focus on only 1. Factors that cormplicate the analivs are sunk costs, opportunity costs, externalkies, changes in net operating working capital, and salvage values. Adjustments to the analysis must be made for concentrate on expansion project analyses here but there are similarities when analyzing replacement projects: Give the correct response to each of the following questions. Which of the foliowing items should be included in the capital budgeting analysis? 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 Which of the following is an example of an opportunity cost? a. A pubilsher 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 net buit, the firm could sell the land for $2 miltion (net of taxes): C. Apple's investment in the ITunes music store boosted sales of its Pod. d. The cost of a report done 2 years ago to investigate the potentoal of a new plant and the permits required to buid it. c. Statements a and d are both exampies of opportunity costs. The correct response is Which of the following is an example of camibalization? a. A publisher introduces a new textbook which reduces sales of one of their exsting teathooks. b. A firm has land that can be used in bullding a now store. If the new store is not buit, the firm could sell the land for $2 millan (net of taues). c. Apple's investment in the munes music stere boosted saies of its ipod. d. The cost of a report done 2 years apo to investigate the potential of a new plant and the permits required to buid it. c. Statements c and d are both exampies of cannibalizetion. The correct response is