John Walked into Sam's TV Store and Said,pointing to a Particular

question 39

Essay

John walked into Sam's TV store and said,pointing to a particular television,"I'll take that one." They wrote up the deal,and John was to return the next day to pay for it and pick it up.Explain who bears the risk in the meantime.

Understand the stages of capital expenditure decision process and how to apply NPV and IRR methods for risk assessment and ranking of investment proposals.

Understand the concept of cash flows in capital budgeting and distinguish between cash outflows and non-cash charges.

Recognize the importance of the time value of money in evaluating capital expenditure proposals.

Understand the characteristics and applications of payback and accounting rate of return methods in capital budgeting.

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Definitions:

Contract Curve

Curve showing all efficient allocations of goods between two consumers, or of two inputs between two production functions.

Utility Possibilities Frontier

Curve showing all efficient allocations of resources measured in terms of the utility levels of two individuals.

Production Possibilities Frontier

Curve showing the combinations of two goods that can be produced with fixed quantities of inputs.

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.