FI515Week6 - Week Six Homework Questions, Problems and...

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Week Six Homework Questions, Problems and Solutions Chapter 12 Questions 12-1 and 12-2 Chapter 12 Problems 12-2 and 12-3 Chapter 14 Question 14-1 Chapter 14 Problem 14-1 Question: Answer: 12-1 a. Cash flow – the cash a company has coming in or going out Accounting income – income after expenses are paid b. incremental cash flow – those cash flows that arise solely from the asset that is being evaluated. sunk cost – a cost that has already occurred and is not affected by the capital project decision. They are not relevant to capital budgeting decisions. opportunity cost – a cash flow that a firm must forgo to accept a project c. net operating working capital changes – operating current assets minus operating current liabilities. salvage value – the market value of an asset after its useful life d. real rate of return – contains no adjustment for expected inflation. If net cash flows from a project do not include inflation adjustments, then the cash flows should be discounted at the real cost of capital.
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nominal rate of return – includes the inflation adjustment (premium). Thus if the nominal rate of return are used in capital budgeting process, the net cash flows must also be nominal. e. sensitivity analysis – Indicates exactly how much NPV will change in response to a given change in an input variable, other things held constant. scenario analysis – a shorter version of simulation analysis that uses only a few
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This note was uploaded on 03/26/2012 for the course F1515 F1515 taught by Professor Stan during the Spring '10 term at Keller Graduate School of Management.

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FI515Week6 - Week Six Homework Questions, Problems and...

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