Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 11, Problem 4Q
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To discuss: The reason why the sunk cost are not consider in the capital budgeting and externalities and
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In a capital budgeting study, explain why sunk costs should not be included, but opportunity costs and externalities should be. Give an example of each.
Explain why sunk costs should be excluded from a capital budgeting study while opportunity costs and externalities should. Please provide an example of each.
WHAT ARE THE PROBLEMS WITH IRR APPROACH TO CAPITAL BUDGETING?
Chapter 11 Solutions
Financial Management: Theory & Practice
Ch. 11 - Prob. 2QCh. 11 - Why is it true, in general, that a failure to...Ch. 11 - Prob. 4QCh. 11 - Explain how net operating working capital is...Ch. 11 - How do simulation analysis and scenario analysis...Ch. 11 - Why are interest charges not deducted when a...Ch. 11 - Most firms generate cash inflows every day, not...Ch. 11 - What are some differences in the analysis for a...Ch. 11 - Distinguish among beta (or market) risk,...Ch. 11 - Prob. 11Q
Ch. 11 - Talbot Industries is considering launching a new...Ch. 11 - The financial staff of Cairn Communications has...Ch. 11 - Allen Air Lines must liquidate some equipment that...Ch. 11 - Although the Chen Company’s milling machine is...Ch. 11 - Wendys boss wants to use straight-line...Ch. 11 - The Campbell Company is considering adding a...Ch. 11 - The president of your company, MorChuck...Ch. 11 - The Rodriguez Company is considering an...Ch. 11 - St. Johns River Shipyards welding machine is 15...Ch. 11 - Shao Industries is considering a proposed project...Ch. 11 - The Everly Equipment Company’s flange-lipping...Ch. 11 - The Bartram-Pulley Company (BPC) must decide...Ch. 11 - The Yoran Yacht Company (YYC), a prominent...Ch. 11 - Shrieves Casting Company is considering adding a...Ch. 11 - Disregard the assumptions in Part a. What is the...Ch. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Estimate the required net operating working...Ch. 11 - Prob. 6MCCh. 11 - Calculate the project cash flows for each year....Ch. 11 - Prob. 8MCCh. 11 - What is a real option? What are some types of real...
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- Is capital budgeting decisions can be reversedarrow_forwardWhy might DCF techniques not lead to proper capital budgeting decisions?arrow_forwardWhy should the financial manager include opportunity cost but ignore sunk costs when evaluating a proposed capital investments? Give an example of each.arrow_forward
- Discuss how sunk costs, opportunity costs, side effects, financing costs, and taxes should be treated in capital budgeting analysis and why.arrow_forwardWhat is the difference between capital budgeting decisions and capital structure decisions? Which of these two do you think is more important and why?arrow_forwardUnder what circumstances the cross over rate will be an important point in capital budgeting. Can it create a problem in project selection? Explain.arrow_forward
- What is linear programming for capital budgeting?arrow_forwardWhat are the various costs that must be evaluated in a capital budgetingdecision?arrow_forwardWhich of the following is NOTa relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a. Shipping and installation costs. b. Cannibalization effects. c. Opportunity costs. d. Sunk costs that have been expensed for tax purposes. e. Changes in net working capital. Please explain your answer for better understanding.arrow_forward
- Use an example to explain to show why capital budgeting relies on cash flows rather than net income?arrow_forwarde) How does the basic net present value model of capital budgeting deal with the problem of project risk? What are the shortcoming of this approacharrow_forwardWhich of the following statement is true? O a. Sunk cost is not relevant in capital budgeting decision O b. Capital budgeting decisions are based on past OC. Capital budgeting decisions are short term in nature O d. Capital Budgeting decisions can be changed anytimearrow_forward
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