FIN311 Ch. 9 Final Exam Review

increase operating leverage than to decrease it

For all practical purposes, it is easier to _____.

direct

Incremental cash flows come about as a(n) ________ consequence of taking a project under consideration.

ignored

Interest expenses incurred on debt financing are ______ when computing cash flows from a project.

-cash is kept for unexpected expenditures -credit sales are made -inventory is purchased

Investment in net working capital arises when ___.

winner's curse

Korporate Classics Corporation (KCC) won a bid to supply widgets to Pacer Corporation but lost money on the deal because they underbid the project. KCC fell victim to the _____.

accelerated cost recovery system

The ACRS or __________ is a depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications.

winner's

The _______ curse says that the lowest bidder is the one who underbid the most.

erosion

The cash flows of a new project that come at the expense of a firm's existing projects is called _______

lives

The computation of equivalent annual costs is useful when comparing projects with unequal _____.

net working capital

The difference between a firm's current assets and its current liabilities is known as the _____.

relevant

The first step in estimating cash flow is to determine the _________ cash flows.

relevant

The first step is to determine whether cash flows are _________

1986 Tax Reform Act

The rules for depreciating assets for tax purposes are based upon provisions in the ___.

test marketing expenses

What is an example of a sunk cost?

won't

When analyzing a proposed investment, we ________ (will/won't) include interest paid or any other financing costs.

easy

When developing cash flows for capital budgeting, it is _____ to overlook important items.

- there is an additional depreciation deduction -the decrease in costs increases operating income

When evaluating cost-cutting proposals, how are operating cash flows affected?

It is expected to be recovered by the end of the project's life.

While making capital budgeting decisions, which of the following sentence is true regarding the initial investment of net working capital?

increase

With cost-cutting proposals, when costs decrease, operating cash flows ___________(decrease/increase).

incremental

_______ cash flows come about as a direct consequence of taking a project under consideration.

sunk costs

_______ costs are costs that have already occurred and are not affected by accepting or rejecting a project

-cost of equipment -rent on a production facility

which of the following are fixed costs? (2 examples)

should, is no

A calculated NPV of $15,000 means that the project is expected to create a positive value for the firm and _______ (should/should not) be accepted if there ____ (is/is no) capital rationing constraint

stand-alone

According to the _________ principle, once the incremental cash flows from a project have been identified, the project can be viewed as a "minifirm."

net working capital

Accounts receivable and accounts payable are not an issue with project cash flow estimation unless changes in ______________ are overlooked.

increase

An increase in depreciation expense will ____ cash flows from operations.

after-tax

Cash flows should always be considered on an ___________ basis.

true

Cash flows should always be considered on an after-tax basis. True or False

reduce

Erosion will ______ the sales of existing products.

- earnings before interest and taxes -depreciation -taxes

Operating cash flow is a function of _____.

relevant costs

Opportunity costs are classified as ______ costs in project analysis

stand-alone

The _______ -alone principle is the assumption that evaluation of a project may be based on the project's incremental cash flows.

current assets - total current liabilities

What is net working capital?

net working capital

When a firm finances new investments, it may set up accounts payable with suppliers, but the balance that the firm must supply is called the investment in NWC or _____________

opportunity costs

__________ costs are benefits lost due to taking on a particular project

- Payback period - NPV - IRR

Once cash flows have been estimated, which of the following investment criteria can be applied to them?