Explain what is involved in (a) construction of the capital budget, (b) submitting an authorization request, (c) conducting a postaudit. (pages 269-271)
There are three ways that a manager can try to identify the principal threats to a projects success-sensitivity analysis, scenario analysis, and Monte Carlo simulation. Briefly describe how you would use each technique. (pages 271-279)
Can you derive optimistic and pessimistic values for total projects flows from sensitivity analysis? Why or why not? (pages 273-274)
What are the advantages of scenario analysis compared with sensitivity analysis? (pages 273-274)
"Projects that break-even on an accounting basis are really making a loss." What is meant by this statement? (pages 274-276)
How does an increase in the proportion of costs that are fixed affect a project's breakeven point? (pages 277-278)
When using Monte Carlo simulation to analyze a project, it is important to specify the correlation between the forecast errors. Explain why and give some examples. (pages 278-280)
What are the four main types of real options? (pages 284-287)
What are the main advantages and limitations of decision trees when analyzing projects involving real options? (pages 292-293)
