Principles of finance

Which of the statements below is TRUE?

An increase in working capital can be brought about by an increase in inventory

Which of the statements below is FALSE?

Book value is the original cost of the asset plus the accumulated depreciation

To project the appropriate anticipated cash flow for a project, we must pull all cash flow knowledge together. This includes ______ of the incremental cash flow.

Both the amount of timing

____ is at the heart of corporate finance, because it is concerned with making the best choices about project selection

Capital budgeting

Which of the following is NOT a potential problem suffered by the IRR method of capital budgeting?

Disagreement with the NPV as to whether a project with ordinary cash flows is profitable or not.

Whenever a new product competes against a company's already existing products and reduces the sales of those products, ________ occur.

Erosion costs

A gain on disposal is recognized when the selling price of the asset is ____ the book value.

Greater than

_____ cash flow is the increase in cash generated by a new project above current cash flow without the new project.

Incremental

The advantage of ___ over ___ depreciation is that you can write off more of your capital costs in the earlier years.

MACRS over straight-line depreciation

_____ involve a cash flow that never occurs, but we need to add it as a cost or outflow of a new project

Opportunity costs

_____ are an accounting measure of performance during a specific period of time, while _____ is the actual inflow or outflow of money.

Profits, cash flow

_____ of a project are those that have already been incurred and cannot be reversed.

Sunk costs

T/F To be considered acceptable, a project must have an NPV greater 1.0

T/F False

T/F If the company had a large depreciation expense during the period, the income statement could show a loss for the period, even though the cash account may have grown during the same period.

T/F True

Which of the statements below describes the IRR decision criterion?

The decision criterion is to accept a project if the IRR exceeds the desired or required return rate

Which one of the following statements is correct concerning MACRS?

The depreciation percentages are applied to the initial cost of the asset

The IRR is the discount rate that produces a zero NPV or the specific discount rate at which the present value of the cost equals ______

the present value of the future benefits or cash inflows