Option values are extinguished when they areexercised. How does this influence capital budgeting decisions? What considerations, or typesof analysis, might lead management to “take theplunge” and proceed with a project rather thankeep delaying it?

Q: Which of the following statement is   true?   O a. Sunk cost is not relevant in   capital…

A: Capital budgeting decisions are used to evaluate new projects, opportunities, and investments such…

Q: Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating…

A: Internal rate or return or IRR is the method of capital budgeting which is determined and compared…

Q: Which of the following statements regarding capital budgeting analysis is correct?     NPV assumes…

A: Capital budgeting is the process of making investment decisions by a company in which different…

Q: Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs…

A: A sunk cost is the cost that has been incurred as a result of past events and such cost may not be…

Q: Which of the following contributes positively to the value of a real option to delay investment?…

A: Real option:A real option is a selection made open to a firm's managers on prospects for business…

Q: What is the main disadvantage of discountedpayback? Is the payback method of any realusefulness in…

A: The discounted payback method is a method of evaluating the payback period of the investment carried…

Q: Suppose a company uses the NPV method, alongwith risk-adjusted WACCs, to calculate projectNPVs.…

A: Companies find NPV to know the present worth of the project and on that basis, they decide to go for…

Q: Which of the statements below is TRUE regarding CAPITAL BUDGETING? OA The NPV tels us the expected…

A: Capital budgeting indicates the evaluation of the profitability of possible investments and projects…

Q: . If a capital budgeting project’s cash flows are not normal, the internal rate of return (IRR)…

A: SOLUTION- INTERNAL RATE OF RETURN- IT IS A DISCOUNT RATE THAT MAKES THE NET PRESENT VALUE OF ALL…

Q: True or False: It is often impossible to forecast the cash flows from follow-on projects associated…

A: TRUE

Q: The NPV Rule O is flawed due to a technical factor called the 'reinvestment rate assumption. O is…

A: Net Present value is the difference between the present value of cash inflows and cash outflows.…

Q: Suppose a firm uses a constant WACC in determining the value of capital budgeting  projects rather…

A: WACC is the weighted average return that a company pays over all its assets. The WACC of a company…

Q: Critically assess how a failed capital project may also shape the future strategy of investment…

A: Capital projects are nothing but a long-term capital-intensive initiative aimed at expanding on,…

Q: Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis…

A: Sunk cost is the cost that has been incurred and it would not be recovered in future. It depends on…

Q: In a capital budgeting study, explain why sunk costs should not be included, but opportunity costs…

A:

Q: True or False: Sophisticated firms use only the NPV method in capital budgeting decisions. True…

A: When choosing between two methods Net Present Value (NPV) and Internal Rate of Return (IRR), it is…

Q: “Only quantitative outcomes are relevant in capital budgeting analyses.” Do you agree? E xplain.

A: “Only quantitative outcomes are relevant in capital budgeting analyses”. This statement is…

Q: Which of the statements below describes the correct capital budgeting decision rule? O A. Reject a…

A: Capital Budgeting Capital budgeting refers to different techniques used to evaluate the project.…

Q: Under what circumstances the cross over rate will be an important point in capital budgeting. Can it…

A: Capital Budgeting is a process in which the company decided on the project investments which would…

Q: Risk in capital budgeting implies that the decision maker knows _ of the cash flows. Fill in the…

A: In capital budgeting the decision maker will have an idea after analysing risks about the cash flows…

Q: Projects are also often embedded with different options that can help making decisions under…

A: The real options used to increase the value of a capital investment in the project because it gives…

Q: True or False: In solving a capital budgeting problem involving investment opportunities that are…

A: In solving a capital budgeting problem involving investment opportunities that are divisible (i.e.,…

Q: Why might DCF techniques not lead to proper capital budgeting decisions?

A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…

Q: What is capital budgeting? Compare the advantages and disadvantages of various capital budgeting…

A: Capital budgeting is indeed the process by which a company evaluates potential large projects or…

Q: If a firm fails to consider growth options, would this cause it to underestimate oroverestimate…

A: Growth options will lead to an increase in the future cash flows which further increases the growth…

Q: Which of the following is NOT an assumption we have to make in order to use the WACC to carry out an…

A: There are some assumptions we have to make in order to use the Weighted Average Cost of capital as a…

Q: If a firm has only independent projects, a constant WACC, and projects with normal cash flows, the…

A: This declaration is valid because of the reasons why it is possible to approve or deny individual…

Q: Capital budgeting decisions, once made, are not easy to reverse because of the huge investments…

A: Capital budgeting decision are decision regarding to investment in long term projects of the…

Q: ic   net  present   value  model of capital budgeting  deal with the problem of project risk?  What…

A: Introduction : In simple words, net present value refers to the amount that is calculated by…

Q: True or False: In solving a capital budgeting problem involving investment opportunities that are…

A: capital budgeting is the process of selection of the best project among all the projects available.…

Q: What is the major criticism of the payback and simple rate of return methods of making capital…

A: Cash payback method: Cash payback period is the expected time period which is required to recover…

Q: In capital budgeting decisions, are there reasons a company might choose to take a project that was…

A: Net present value (NPV) is value of all future cash flows discounted to the present value by either…

Q: What is the major short coming of using the payback period as the only criterion in making capital…

A: ANSWER    the major short coming of using the payback period as the only criterion in making capital…

Q: Payback is considered an unsophisticated capital budgeting technique because it a) gives explicit…

A: Capital budgeting is the method through which corporations make decisions of the acceptance and…

Q: NPV and IRR are two of the most important decision criteria in capital budgeting.  Will NPV and IRR…

A: Net Present Value Net present value is the difference between the present value of the cash inflows…

Q: Sherley Garci is fascinated by Capital Budgeting. However, she is not clear about the following…

A: DEFINATION OF MUTUALLY EXCLUSIVE PROJECT METHOD OF RANKING FOR MUTUALLY EXCLUSIVE PROJECTS

Q: Suppose a firm uses the WACC as the single hurdle rate in determining the value of capital budgeting…

A: The overall cost of capital, also known as the Weighted average cost of capital (WACC), is the…

Q: 1. Why can’t diversification reduce systematic risk? 2. Why are sunk costs excluded when conducting…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Which of the following capital budgeting methods is biased against long-term projects such as…

A: The question is related to Capital Budgeting. The pay back period is the length of time required to…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.