Finance Chapter 10

Which one of the following is an example of a sunk cost?

$2,000 paid last year to rent equipment

Which one of the following is a project cash inflow? Ignore any tax effects.

Decrease in inventory

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

Incremental

All of the following cash flows are related to a proposed project. Which one of these should be included in the cash flow at Time 0?

Initial investment in inventory to support the project

Which one of the following best illustrates erosion as it relates to a snack stand located on the beach?

Selling fewer cookies because ice cream was added to the menu

Cerda Diagnostics spent $5,000 last week repairing equipment. This week the company is trying to decide whether the equipment could be better utilized by assigning it to a proposed project. When analyzing the proposed project, the $5,000 should be treated as which type of cost?

Sunk

Which one 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

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

include interest expense.

A project's cash flow is equal to the project's operating cash flow:

minus both the project's change in net working capital and capital spending.