Chapter 9

Which of the following create cash inflows from net working capital?

Increase in accounts payable and decrease in inventory

Which one of the following terms refers to the best option that was foregone when a particular investment is selected?

Opportunity cost

Kate is analyzing a proposed project to determine how changes in the sales quantity would affect the project's net present value. What type of analysis is being conducted?

Sensitivity analysis

The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation:

Tax Shield

Scenario analysis:

helps determine the reasonable range of expectations for a project's anticipated outcome.

Any changes to a firm's projected future cash flows that are caused by adding a new project are referred to as:

incremental cash flows.

Ignoring the option to wait:

may underestimate the net present value of a project.

The tax shield approach to computing the operating cash flow, given a tax-paying firm:

recognizes that depreciation creates a cash inflow.

The net working capital invested in a project is generally:

recouped at the end of the project.

When a firm faces hard rationing,:

there will be no available funds for capital expenditures.