1. Ignoring the option to wait: ignores the ability of a manager to increase output after a project has been implemented.
may underestimate the net present value of a project.
ignores the value of discontinuing a project early.
is the same as ignoring all strategic options.
may overestimate the internal rate of return on a project.
2. Newton Industries is considering a project and has developed the following estimates: unit sales = 4,800, price per unit = $67, variable cost per unit = $42, annual fixed costs = $11,900. The depreciation is $14,700 a year and the tax rate is 34 percent. What effect would an increase of $1 in the selling price have on the operating cash flow?
$82,368 $4,823 $1 $3,168 $83,448