Finance Ch 12 & 13 Theory

For which situation below would one need to "smooth out" the variation in each set of cash flows so that each becomes a perpetuity?

Choosing between alternative assets with differing lives

Effects that arise from a new product or service that increase sales of the firm's existing products or services are referred to as:

Complementary effects

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return, IRR, decision rule?

Modified Internal Rate of Return (MIRR)

Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects?

Net present value

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project?

Payback

Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?

Pro forma analysis

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return?

Profitability Index (PI)

Effects that arise from a new product or service that decrease sales of the firm's existing products or services are referred to as:

Substitutionary effects

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back money invested in a project plus interest at market rates?

Discounted payback

When calculating operating cash flow for a project, one would calculate it as being mathematically equal to which of the following?

EBIT - Taxes + Depreciation

Which of these is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based upon the implicit expected geometric average of a project's rate of return

Internal Rate of Return (IRR)

A decrease in net working capital (NWC) is treated as a:

cash inflow

The best approach to convert an infinite series of asset purchases into a perpetuity is known as the:

equivalent annual cost approach

Which of these is used as a measure of the total amount of available cash flow for a project?

free cash flow

If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a

sunk cost

As new capital budgeting projects arise, we must estimate:

when such projects will require cash flows