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Ch 12: Assignment - Cash Flow Estimation and Risk Analysis 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. Concept or Definition Term The specific cash flows that should be considered in a capital budgeting decision A cost that has been incurred and may be related to a project but should not be part of Relevant cash flows i the decision to accept or reject a project The cash flows that the asset or project is expected to generate over its life Positive cash flows The effects on other parts of the firm Current cash flows The cost of not choosing another mutually exclusive project by accepting a particular project Negative cash flows 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 that the best place for the company to open its first location would be in Chicago. When conducting its capital budgeting analysis, how should the company account for the cost of the study when estimating the amount of the initial investment that the new store will require? 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. The company should ignore the cost of the study. 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. Grade It Now Save & Continue