Questions from Financial Management

Q: What is a “replacement chain?” When and how should replacement

What is a “replacement chain?” When and how should replacement chains be used in capital budgeting?

Q: Explain why sunk costs should not be included in a capital budgeting

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.

Q: Explain why working capital is included in a capital budgeting analysis and

Explain why working capital is included in a capital budgeting analysis and how it is recovered at the end of a project’s life.

Q: Suppose you believe that the economy is just entering a recession.

Suppose you believe that the economy is just entering a recession. Your firm must raise capital immediately, and debt will be used. Should you borrow on a long-term or a short term basis? Why?

Q: Most firms generate cash inflows every day, not just once at

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...

Q: What are some differences in the analysis for a replacement project versus

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

Q: Bankers’ Services Inc. (BSI) is considering a project that

Bankers’ Services Inc. (BSI) is considering a project that has a cost of $10 million and an expected life of 3 years. There is a 30% probability of good conditions, in which case the project will prov...

Q: 21st Century Educational Products (21st Century) is a rapidly growing

21st Century Educational Products (21st Century) is a rapidly growing software company; and consistent with its growth, it has a relatively large capital budget. While most of the companyâ€...

Q: How might a firm’s corporate WACC be affected by the size of

How might a firm’s corporate WACC be affected by the size of its capital budget?

Q: The Zinn Company plans to issue $20,000,000

The Zinn Company plans to issue $20,000,000 of 10-year bonds in December to help finance a new research and development laboratory. It is now August, and the current cost of debt to the high-risk biot...