Unformatted text preview: entals. Then click on Risk Intuition.
1. Take the seven-question quiz. Were you surprised at the answers?
Return to the Fundamentals page and click on Risk Measures.
2. Describe the three categories of risk measures and how they could be used in
capital budgeting analysis.
Scroll down the Risk Measures menu in the lower left frame and click on Asset
3. Why are statistical risk measures less satisfactory in determining asset risk?
4. Summarize the steps to analyze asset risk.
5. Using the following project description, explain how you would analyze the
for a New Assembly Line
Initial cost: $6,600,000
Expected incremental cash inflows:
Year 1 $1,280,000 Year 2 1,640,000 Year 3 1,820,000 Year 4 2,030,000 Year 5 2,450,000 6. What types of assumptions would you change to create new cash flows?
Consider various market factors such as timing for project implementation,
inflation, capital costs, and so forth. Remember to check the book’s Web site at
for additional resources, including additional Web exercises. INTEGRATIVE CASE 3
Lasting Impressions Company
asting Impressions (LI) Company is a medium-sized commercial
printer of promotional advertising brochures, booklets, and other
direct-mail pieces. The firm’s major clients are New York– and Chicagobased ad agencies. The typical job is characterized by high quality and
production runs of over 50,000 units. LI has not been able to compete
effectively with larger printers because of its existing older, inefficient
presses. The firm is currently having problems cost effectively meeting
run length requirements as well as meeting quality standards.
The general manager has proposed the purchase of one of two large
six-color presses designed for long, high-quality runs. The purchase of a
new press would enable LI to reduce its cost of labor and therefore the
price to the client, putting the firm in a more competitive position. The
key financial characteristics of the old press and of the two proposed
presses are summariz...
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