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Capital Budgeting & Corporate Investments

1. How do you determine if a cash flow is relevant or irrelevant?

2. Beside the ones given in the text, please give an example of an indirect benefit.

3. I bought my car for 28,000 five years ago, it is now worth 16,000 (net of selling expenses). I want to use my car in a new taxi business that I am starting. What is the correct opportunity cost that should be used in calculating the NPV of my taxi service?

4. How do you depreciate land?

5. What formula do you use to calculate the annual depreciation on commercial buildings?

6. Are increases in accounts receivables a source or use of cash?

7. Are increases in accounts payables a source or use of cash?

8. If the working capital balance was $140,000 at the end of 2011 and was $100,000 at the end of 2012. What is the incremental investment in working capital for 2012?

9. Discuss one method (discussed in the text) that businesses use in practice to forecast demand.

10. Discuss one method (discussed in the text) that businesses use in practice to forecast costs.

Solution Preview

1. How do you determine if a cash flow is relevant or irrelevant?

2. Beside the ones given in the text, please give an example of an indirect benefit.

3. I bought my car for 28,000 five years ago, it is now worth 16,000 (net of selling expenses). I want to use my ...

Solution Summary

This solution thoroughly discusses each of the capital budgeting and corporate investment questions presented.

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