Chapter 6: Reading Assignment
increase
If sales are made on credit, net working capital will _____.
real
Nominal interest rate - Inflation rate approximates the __________ interest rate.
relevant
Opportunity costs are classified as ____ costs in project analysis.
Equivalent annual costs
When comparing projects with unequal lives, one should use which of the following methods:
real cash flow
Which of the following refers to a cash flows purchasing power?
$2,220 OCF= EBIT - taxes + depreciation $600* (1-.30)+$1,800= $2,220
According to the bottom-up approach, what is the OCF if EBIT is $600, depreciation is $1,800, and the tax rate is 30 percent?
cash flows; earnings
Corporate finance emphasizes _____ while financial accounting emphasizes ______.
shield
Depreciation × Tax rate represent the depreciation tax ______________.
the interest rate and inflation rate are low
It is appropriate to use the approximate formula for estimating the real interest rate when:
net income
The bottom-up approach to calculating OCF starts with:
lives
The computation of equivalent annual costs is useful when comparing projects with unequal _____. Multiple choice question.
Financial Accounting Standards Board (FASB)
The shareholders' books in the US follow the rules of the ____.
False
True or false: Opportunity costs can be ignored when determining the financial feasibility of a project.
-Cash is kept for unexpected expenditures -Credit sales are made -Equipment is purchased using long term debt
Investment in net working capital arises when ___.
Real interest rate = Nominal interest rate - Inflation rate
What is the approximate formula for estimating the real interest rate?
lowest
When bidding for a job, a competing firm can use the NPV approach to determine their bid. Once the bid is submitted, the firm will win the contract for the project if their bid is the: