Capital budgeting analysis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, answer the following questions: The present value of can be used to determine the basis of a firm’s value. Ideally, capital budgeting analysis should take cash flows into account Understanding the nature of projects Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects. Based on your understanding of expansion and replacement projects, answer the following: If a clothing store opens a second retail location on the other side of town, this project would be considered ▼ project. What are sunk costs? Alexander Industries owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Alexander Industries include the value of the warehouse as part of the initial investment in the new project or treat the value of the warehouse as a sunk cost? O No, treat the value of the warehouse as a sunk cost O Yes, include the value of the warehouse as part of the initial investment in the new project

“ Capital budgeting analysis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, answer the following questions: The present value of can be used to determine the basis of a firm’s value. Ideally, capital budgeting analysis should take cash flows into account Understanding the nature of projects Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects. Based on your understanding of expansion and replacement projects, answer the following: If a clothing store opens a second retail location on the other side of town, this project would be considered ▼ project. What are sunk costs? Alexander Industries owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Alexander Industries include the value of the warehouse as part of the initial investment in the new project or treat the value of the warehouse as a sunk cost? O No, treat the value of the warehouse as a sunk cost O Yes, include the value of the warehouse as part of the initial investment in the new project ”