1. Review the meaning of the concepts or terms given in Key Terms and Concepts.
2. The capital budgeting process comprises two distinct decisions. Describe these.
3. Assume a margin of error of plus or minus 10 percent in estimating any number required as an input for a capital budgeting decision. Under ordinary conditions, the net present value of a project is most sensitive to the estimate of which of the following?
(1) Amounts of future cash flows
(2) Timing of future cash flows
(3) Cost of capital
4. Describe the factors that influence the market rate of interest a company must pay for borrowed funds.
5. ‘‘Under no conditions should the investment decision be made simultaneously with the financing decision.'' Comment.