Chapter 10

What types of projects does the BNSF strategic studies team evaluate?

discretionary

Identify which of these are the relevant cash flows when considering a capital budgeting project.

lost rent from retail facility remodeling expenses for new store increase in inventory expected salvage value of manufacturing equipment

What is the net effect on a firm's working capital if a new project requires: $34,867 increase in inventory, $42,427 increase in accounts receivable, $35,000.00 increase in machinery, and a $42,993 increase in accounts payable? Round to nearest dollar amount.

34,301

Which of the following changes, if of a sufficient magnitude, could turn a negative NPV project into a positive NPV project?

A decrease in the fixed costs

A corporation is contemplating an expansion project. The CFO plans to calculate the project's NPV by discounting the relevant cash flows (which include the initial up-front costs, the operating cash flows, and the terminal cash flows) at the corporation's cost of capital (WACC). Which of the following factors should the CFO include when estimating the relevant cash flows?

Any opportunity costs associated with the project.

According to the article, "Sunk cost fallacy: Throwing good money after bad," how can banks limit losses from bad loans?

increase bank executive turnover

Jon Stevens, BNSF Vice President and Controller describes the capital spending process primarily as

a means to ensure regulatory compliance a balancing act that requires careful evaluation of the costs and benefits of each project

If a 20% reduction in forecast sales would not extinguish a project's profitability, then sensitivity analysis would suggest:

deemphasizing that variable as a critical factor.

What types of analyses do the BNSF strategic studies team conduct?

discounted cash flow sensitivity