FIN3403 Chapter 10 Conceptual

Which one of the following is a project cash inflow? Ignore tax effect

decrease in accounts receivable

Which of the following is an example of a sunk cost

1,200 paid to repair a machine last year

Dependable Motors just purchased some MACRS 5-year property at a cost of 216,000. MACRS rate are... Book Value at end of year 2

216 X (1 - .2 - .32)

P.A. Petroleum just purchased some equipment at a cost of 67,000. 5 year property (MACRS) Metholody for computing the depreciation expense for year 2

67,000 X .32

The net book value of equipment will

decrease slower under straight-line depreciation than under MACRS

Which of the following is the depreciation method that allows accelerated write-offs of property under various lifetime classifications

ACRS

G & L Plastic molders spend 1200 last week repairing a machine. 1200 should be treated as a

sunk cost

The difference between a firm's future cash flows if it accepts a project and the firm's future cash flow if it does not accept the project is referred to as the project's

Incremental cash flows

Dan is comparing three machines to determine which one to purchase. The machines sell for differing prices, having differing operating costs and machine lives, and will be replaced when worn out. Dan should use

Equivalent annual cost

You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines that have differing initial and ongoing costs and differing lives. Replaced...

Lowest equivalent annual cost

Three years ago, Knox glass purchased machine for 3 year....straightline to zero over 5 year period....project ended and the machine was sold...After tax sal value of that machine

SP + (BV - SP) X T

which of the following statements is correct concerning bid prices

a firm can submit a bid that is higher than the computed bid price and still break even

Which of the following statements is correct

a project can create a positive operating cash flow without affecting sales

The depreciation tax shield is best defined at the

amount of tax that is saved because of the depreciation expense

Which of the following would make a mutually exclusive project unacceptable?

an equivalent annual cost that exceeds that of an alternative

Which of the following will increase the bid price

an increase in the required rate of return

Changes in net working capital requirements:

can affect the cash flows of a project every year of the project's life

The operating cash flow of a cost-cutting project

can be positive even though there are no sales

Net working capital

can create either an initial cash inflow or outflow

The equivalent annual cost considers all of the following except

cost of research conducted to identify equipment choices

Increasing which of the following will increase the operating cash flow assuming that the bottom-up approach is used to compute the operating cash flow

depreciation expense

Assume you are considering two mutually exclusive machines and need to select one for a cost-cutting project. Which one of these sets of characteristics best indicates the use of the equivalent annual cost method of analysis

differing lives and planned replacement at end of life

Decreasing which of the following will increase the acceptability of a project

equivalent annual cost

The annual annuity stream of payments that has the same present value as a project's costs is referred to as which of the following

equivalent annual cost

Which of the following best describe pro forma financial statements

financial statements showing projected values for future time periods

Kelley's Baskets makes handmade baskets for distribution to upscale retail outlets. The firm is currently considering making handmade wreaths as well. Which of the following is the best example of an incremental operating cash flow related to the wreath project

hiring additional employees to handle the increased workload should the firm accept the wreath project

The top-down approach to computing the operating cash flow

ignores noncash expenses

Pro forma statements for a proposed project should generally do all of the following except

include interest expense

Which of the following costs was incurred in the past and cannot be recouped

sunk

The stand-alone principle advocates that project analysis should be based solely on which of the following costs

incremental

All of the following are related to a proposed project. Which of these should included in the cash flow at time 0

initial investment in inventory to support the project

The operating cash flow for a project should exclude which of the following

interest expense

Which of the following should not be included in the analysis of a new product

money already spend for research and development for the new project

Which of the following is a correct method for computing the operating cash flow of a project assuming the interest expense is equal to 0

net income + depreciation

The option that is foregone so that an asset can be utilized by a specific project is referred to as which one of the following

opp cost

Which of the following best illustrates erosion as it relates to a hot dog stand located on the beach

selling fewer hot dogs because hamburgers were added to the menu

Frank's is a furniture store that is considering adding appliances to its offerings. Which of the following is the best example of an incremental cash flow related to the appliances

selling furniture to appliance customers

The fact that a proposed project is analayzed based on the project's incremental cash flows is the assumption behind which one of the following principles

stand-alone principle

The current BV of a fixed asset that was purchased 2 years ago is used in computation of the

tax due on the salvage value of that asset

Which of the following best describes the concept of erosion

the cash flows of a new project that come at the expense of a firm's existing cash flows

The bottom-up approach is computing the operating cash flow applies only when

the interest rate is equal to 0

The bid price is

the minimum price that will provide your target rate of return

The bid price always assumes which one of the following

the net present value of the project is zero

Dexter Smith & Co is replacing a machine simply because it has worn out. 5 year life, 34 tax rate, straight-line depreciation, pos net income, which statement is correct

the new machine will generate positive operating cash flows

Equivalent annual cost method is useful in determining

which one of two machines should be purchased when the machines are mutually exclusive, have different lives, and will be replaced at the end of their lives

A company that utilizes the MACRS system of depreciation

will have a greater depreciation tax shield in year 2 than in year 1