Answered: Risk in capital budgeting implies that…

Risk in capital budgeting implies that the decision maker knows _ of the cash flows. Fill in the blanks with correct option. A. Variability B. Certainity C. Probability D. None of these

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 8MC

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Risk in capital budgeting implies that the decision maker knows _ of the cash flows. Fill in the blanks with correct option.

A.	Variability
B.	Certainity
C.	Probability
D.	None of these

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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Risk in capital budgeting implies that the decision maker knows _ of the cash flows. A. Variability B. Certainity C. Probability D. None of these
Which of the following is not a reason for risk and uncertainty in capital budgeting? a. Decisions are based on expected cash flows b. All decisions are based on forecasts c. Decisions are based on past cash flows d. All forecasts are subject to uncertainty Clear my choice
Risk in cash flow estimating for capital budgeting can be defined as: a. the chance that a cash flow will turn out to be worse than the estimate. b. the chance that a cash flow will turn out to be different than the estimate, either better or worse. c. the chance that the cash flows that turn out to be more favorable than the estimate won't totally offset the cash flows that turn out to be worse than the estimate. d. the chance that the NPV and/or IRR will turn out to be worse than the estimate. e. all of the above describe the risk in cash flow estimating.
Which of the following is not a method for incorporating risk analysis into capital budgeting? a. Positive/Negative analysis b. Monte Carlo simulations c. Scenario analysis d. Sensitivity analysis e. Decision tree models
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Sophisticated capital budgeting techniques do not A. examine the size of the initial outlay. B. use net profits as a measure of return. C. explicitly consider the time value of money. D. take into account an unconventional cash flow pattern.
In capital budgeting, one advantage of the internal rate of return is that it does not require the estimation of the weighted average cost of capital. Your answer must begin with True or False followed by your explanation.
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True or false? One way to address risk for a capital budgeting problem is to conduct scenario analysis
True or False: In solving a capital budgeting problem involving investment opportunities that are divisible (i.e., you can invest in portions of the opportunities instead of “all or nothing”), you rank the opportunities on thebasis of internal rate of return and add to the portfolio opportunities andfractions of opportunities, beginning with the largest internal rate of return,until “the investment bucket is filled.”
When making a capital budgeting decision, which of the following are NOT relevant? The size of a cash flow The risk of a cash flow The accounting earnings from a cash flow The timing of a cash flow Multiple Choice I only II only III only II and III only III and IV only They are all relevant.
Which of the following statements regarding capital budgeting analysis is correct? NPV assumes reinvest at IRR. IRR assumes reinvest at the opportunity cost of capital. Reinvest at IRR is more realistic, so NPV method is the best. None of the above statements is correct.