1. Which of the following issues related to a new venture will affect the terminal value calculation?
a. The magnitude of the cash flow at the end of the detailed forecast period b. Aggressive assumptions about growth in the long run c. The generation of substantial revenues in the last years of the detailed forecast period d. Changing economic conditions that affect long term growth prospects e. All of the above
2. Capital rationing may:
a. require omitting projects with higher IRRs while undertaking some with lower IRRs because they fit into the budget constraint better. b. be necessary because there is a budgetary limit on capital spending. c. in practice be done intuitively for reasons that are not entirely financial. d. All of the above
3. The technique for incorporating Risk into capital budgeting that involves the use of numbers drawn randomly from probability distributions is called a:
a. sensitivity analysis. b. scenario analysis. c. probability simulation. d. Monte Carlo simulation.