If you were the CFO of a company that had to decide on hundreds of potential projects every year, would you want to use sensitivity analysis and scenario analysis as described in the chapter, or would the amount of arithmetic required take too much time and thus not be cost-effective? What involvement would nonfinancial people such as those in marketing, accounting, and production have in the analysis?

Distinguish among beta (or market) risk, within-firm (or corporate) risk, and stand-alone risk for a project being considered for inclusion in the capital budget.

What are some differences in the analysis for a replacement project versus that for a new expansion project?

Most firms generate cash inflows every day, not just once at the end of the year. In capital budgeting, should we recognize this fact by estimating daily project cash flows and then using them in the analysis? If we do not, are our results biased? If so, would the NPV be biased up or down? Explain.

Following a total hip replacement, how should the nurse should position the client?

Find each quotient, or, if applicable, state that the expression is undefined. $\frac{-90}{-3}$

Is the following statement always, sometimes, or never true? "Three noncoplanar points are contained in a single space."

Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included. Give an example of each.

Define (a) sensitivity analysis, (b) scenario analysis, and (c) simulation analysis. If GE were considering two projects (one for 500 million dollars to develop a satellite communications system and the other for 30,000 dollars for a new truck), on which would the company be more likely to use a simulation analysis?

In theory, market risk should be the only "relevant" risk. However, companies focus as much on stand-alone risk as on market risk. What are the reasons for the focus on standalone risk?

What is a mutually exclusive project? How should managers rank mutually exclusive projects?

Why is the NPV of a relatively long-term project (one for which a high percentage of its cash flows occurs in the distant future) more sensitive to changes in the WACC than that of a short-term project?

How could China expand its economic success to the interior?

A farmer has 100 lb of apples and 50 lb of potatoes for sale. The market price for apples (per pound) each day is a random variable with a mean of 0.5 dollars and a standard deviation of 0.2 dollars. Similarly, for a pound of potatoes, the mean price is 0.3 dollars and the standard deviation is 0.1 dollars. It also costs him 2 dollars to bring all the apples and potatoes to the market. The market is busy with eager shoppers, so we can assume that he'll be able to sell all of each type of produce at that day's price.

Define your random variables, and use them to express the farmer's net income.