FIN311 Ch. 9 Final Exam Review
increase operating leverage than to decrease it
For all practical purposes, it is easier to _____.
direct
Incremental cash flows come about as a(n) ________ consequence of taking a project under consideration.
ignored
Interest expenses incurred on debt financing are ______ when computing cash flows from a project.
-cash is kept for unexpected expenditures -credit sales are made -inventory is purchased
Investment in net working capital arises when ___.
winner's curse
Korporate Classics Corporation (KCC) won a bid to supply widgets to Pacer Corporation but lost money on the deal because they underbid the project. KCC fell victim to the _____.
accelerated cost recovery system
The ACRS or __________ is a depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications.
winner's
The _______ curse says that the lowest bidder is the one who underbid the most.
erosion
The cash flows of a new project that come at the expense of a firm's existing projects is called _______
lives
The computation of equivalent annual costs is useful when comparing projects with unequal _____.
net working capital
The difference between a firm's current assets and its current liabilities is known as the _____.
relevant
The first step in estimating cash flow is to determine the _________ cash flows.
relevant
The first step is to determine whether cash flows are _________
1986 Tax Reform Act
The rules for depreciating assets for tax purposes are based upon provisions in the ___.
test marketing expenses
What is an example of a sunk cost?
won't
When analyzing a proposed investment, we ________ (will/won't) include interest paid or any other financing costs.
easy
When developing cash flows for capital budgeting, it is _____ to overlook important items.
- there is an additional depreciation deduction -the decrease in costs increases operating income
When evaluating cost-cutting proposals, how are operating cash flows affected?
It is expected to be recovered by the end of the project's life.
While making capital budgeting decisions, which of the following sentence is true regarding the initial investment of net working capital?
increase
With cost-cutting proposals, when costs decrease, operating cash flows ___________(decrease/increase).
incremental
_______ cash flows come about as a direct consequence of taking a project under consideration.
sunk costs
_______ costs are costs that have already occurred and are not affected by accepting or rejecting a project
-cost of equipment -rent on a production facility
which of the following are fixed costs? (2 examples)
should, is no
A calculated NPV of $15,000 means that the project is expected to create a positive value for the firm and _______ (should/should not) be accepted if there ____ (is/is no) capital rationing constraint
stand-alone
According to the _________ principle, once the incremental cash flows from a project have been identified, the project can be viewed as a "minifirm."
net working capital
Accounts receivable and accounts payable are not an issue with project cash flow estimation unless changes in ______________ are overlooked.
increase
An increase in depreciation expense will ____ cash flows from operations.
after-tax
Cash flows should always be considered on an ___________ basis.
true
Cash flows should always be considered on an after-tax basis. True or False
reduce
Erosion will ______ the sales of existing products.
- earnings before interest and taxes -depreciation -taxes
Operating cash flow is a function of _____.
relevant costs
Opportunity costs are classified as ______ costs in project analysis
stand-alone
The _______ -alone principle is the assumption that evaluation of a project may be based on the project's incremental cash flows.
current assets - total current liabilities
What is net working capital?
net working capital
When a firm finances new investments, it may set up accounts payable with suppliers, but the balance that the firm must supply is called the investment in NWC or _____________
opportunity costs
__________ costs are benefits lost due to taking on a particular project
- Payback period - NPV - IRR
Once cash flows have been estimated, which of the following investment criteria can be applied to them?