Context of capital budgeting-what is opportunity cost

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Questions

1. In the context of capital budgeting, what is an opportunity cost?

2. Given the choice, would a firm prefer to use MACRS depreciation or straight-line depreciation? Why?

3. In our capital budgeting examples, we assumed that a firm would recover all of the working capital it invested in a project. Is this a reasonable assumption? When might it not be valid?

4. Suppose a financial manager is quoted as saying, "Our firm uses the stand-alone principle. Because we treat projects like minifirms in our evaluation process, we include financing costs because they are relevant at the firm level." Critically evaluate this statement.

5. Explain each question in detail with examples and provide references.

Reference no: EM133306304

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