FIN 3403 Chapter 10

The bid price is: - an aftertax price - the aftertax contribution margin - the highest price you should charge if you want the project - the only price you can bid if the project is to be profitable - the minimum price you should charge if you want to financially breakeven

the minimum price you should charge if you want to financially breakeven

The operating cash flow for a project should exclude which one of the following? - taxes - variable costs - fixed costs - interest expense - depreciation tax shield

interest expense

The option that is foregone so that an asset can be utilized by a specific project is referred to as which one of the following? - salvage value - wasted value - sunk cost - opportunity cost - erosion

opportunity cost

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles? - underlying value principle - stand-alone principle - equivalent cost principle - salvage principle - fundamental principle

stand-alone principle

Which one of the following best describes pro forma financial statements? - financial statements expressed in a foreign currency - financial statements where the assets are expressed as a percentage of total assets and costs are expressed as a percentage of sales - financial statements showing projected values for future time periods - financial statements expressed in real dollars, given a stated base year - financial statements where all accounts are expressed as a percentage of last year's values

financial statements showing projected values for future time periods

The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the project's: - incremental cash flows - internal cash flows - external cash flows - erosion effects - financing cash flows

incremental cash flows

Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach? - providing both ketchup and mustard for its customer's use - repairing the roof of the hot dog stand because of water damage - selling fewer hot dogs because hamburgers were added to the menu - offering French fries but not onion rings - losing sales due to bad weather

selling fewer hot dogs because hamburgers were added to the menu

Which one of the following costs was incurred in the past and cannot be recouped? - incremental - side - sunk - opportunity - erosion

sunk

The current book value of a fixed asset that was purchased two years ago is used in the computation of which one of the following? - depreciation tax shield - tax due on the salvage value of that asset - current year's operating cash flow - change in net working capital - MACRS depreciation for the current year

tax due on the salvage value of that asset

Which one of the following best describes the concept of erosion? - expenses that have already been incurred and cannot be recovered - change in net working capital related to implementing a new project - the cash flows of a new project that come at the expense of a firm's existing cash flows - the alternative that is forfeited when a fixed asset is utilized by a project - the differences in a firm's cash flows with and without a particular project

the cash flows of a new project that come at the expense of a firm's existing cash flows