finance smartbook
One of the most important steps in estimating cash flow is to determine the _________ cash flows. Multiple choice question. operating specious relevant
relevant
True or false: Net working capital will be recovered at the end of a project. True false question. True False
true
Incremental cash flows come about as a(n) ________ consequence of taking a project under consideration. Multiple choice question. sporadic indirect direct
direct
True or false: The depreciation tax shield is the depreciation deduction divided by the tax rate. True false question.TrueFalse
false
Sunk costs are costs that ____. Multiple choice question. cannot be measured relate to other projects of the firm have already occurred and are not affected by accepting or rejecting a project will not contribute to profits in the long run even if a project is accepted
have already occurred and are not affected by accepting or rejecting a project
Interest expenses incurred on debt financing are ______ when computing cash flows from a project. Multiple choice question. spread over the life of the project treated as cash outflows ignored treated as cash inflows
ignored
The stand-alone principle assumes that evaluation of a project may be based on the project's ________________ cash flows. Multiple choice question. add-on net differential incremental
incremental
The depreciation tax ___is the tax savings that results from the depreciation deduction.
shield
The difference between a firm's cash flows with a project versus without the project is called ________________. Multiple choice question. net cash flows additional cash flows incremental cash flows differential cash flows
incremental cash flows
The most valuable alternative that is given up if an investment is undertaken is called what? Multiple choice question. sunk cost expected value real return opportunity cost
opportunity cost
Erosion will ______ the sales of existing products. Multiple choice question. reduce not affect increase
reduce
Opportunity costs are classified as ____ costs in project analysis. Multiple choice question. sunk relevant irrelevant intangible
relevant
The first step in estimating cash flow is to determine the _________ cash flows. Multiple choice question. specious relevant operating
relevant
To prepare proforma financial statements, estimates of quantities such as unit sales, selling price per unit, variable cost per unit, and total fixed costs are required. True false question.TrueFalse
true
Estimates of which of the following are needed to prepare pro forma income statements? Multiple select question. variable costs selling price per unit competitor pricing historical trends unit sales
variable costs selling price per unit unit sales
Estimates of which of the following are needed to prepare pro forma income statements? Multiple select question. variable costs selling price per unit competitor pricing unit sales historical trends
variable costs selling price per unit unit sales
Which of the following are components of project cash flow? Multiple select question. Capital spending Operating cash flow Change in Fixed assets Change in net working capital
-Change in net working capital -Operating cash flow -Capital spending
Select all that apply Which of the following are considered relevant cash flows? Multiple select question. Cash flows from sunk costs Cash flows from external costs Cash flows from erosion effects Cash flows from beneficial spillover effects
-cash flows from external costs -Cash flows from beneficial spillover effects -Cash flows from erosion effects
Once cash flows have been estimated, which of the following investment criteria can be applied to them? Multiple select question. YTM NPV IRR payback period the constant growth dividend discount model
NPV IRR PAYBACK PERIOD
Among the three main sources of cash flow, which source of cash flow is the most important and also the most difficult to forecast? Multiple choice question. The operating cash flows from net sales over the life of the project The costs incurred at the inception of the project The salvage value of the project The sunk costs incurred before the inception of the project
The operating cash flows from net sales over the life of the project
True or false: In calculating cash flows, you should consider all financing costs.
false
Given a level of investment in net working capital, that same investment must be at some time in the future.
recovered
True or false: Investment in net working capital may arise from the need to cover credit sales.
true
According to the _________ principle, once the incremental cash flows from a project have been identified, the project can be viewed as a "minifirm." Multiple choice question. walk-alone stand-with stand-alone stand-and-deliver
stand-alone
Operating cash flow is a function of: Multiple select question. Salvage Value of Equipment Initial Investment in Equipment Earnings Before Interest and Taxes Depreciation Taxes
Earnings Before Interest and Taxes Depreciation Taxes
What approach does the following formula describe? OCF = (Sales - Costs) x (1-TC) + Depreciation x TC Multiple choice question. The Depreciation Shield Approach The Tax Shield Approach The Sales and Cost Approach The Depreciation Approach
The tax shield approach
Opportunity costs are ____. Multiple choice question. benefits gained as a result of accepting a particular project the actual expenses incurred by a firm to preserve its market share benefits lost due to taking on a particular project the actual expenses of pursuing a specific project
benefits lost due to taking on a particular project
Cash flows used in project estimation should always reflect: Multiple select question. cash flows when they occur after-tax cash flows financing costs accounting values
cash flows when they occur after-tax cash flows
Which of the following are fixed costs? Multiple select question. net working capital cost of equipment rent on a production facility inventory costs
cost of equipment rent on a production facility
Investment in net working capital arises when ___. Multiple select question. equipment is purchased using long term debt cash is kept for unexpected expenditures credit sales are made inventory is purchased
credit sales are made inventory is purchased cash is kept for unexpected expenditures
Which of the following is an example of a sunk cost? Multiple choice question. Salvage value of equipment Project variable cost Project consultation fee Bonus to top management based on project success
project consultation fee
Side effects from investing in a project refer to cash flows from: Multiple select question. beneficial spillover effects sunk costs opportunity costs erosion effects
erosion effects beneficial spillover effects
Side effects from investing in a project refer to cash flows from: Multiple select question. opportunity costs sunk costs erosion effects beneficial spillover effects
erosion effects beneficial spillover effects
The possibility that errors in projected cash flows will lead to incorrect decisions is known as: Multiple select question. guess and bless forecasting risk managerial incompetence estimation risk
estimation risk forecasting risk
True or false: Fixed costs cannot be changed over the life of the investment. True false question. True False
false
Which of the following are reasons why NPV is considered a superior capital budgeting technique? Multiple select question. It considers all the cash flows. It properly chooses among mutually exclusive projects It considers time value of money. It considers the riskiness of the project. It properly discounts earnings. Reason: Earnings do not represent real money; in capital budgeting, only cash flows are discounted.
It considers all the cash flows. It properly chooses among mutually exclusive projects It considers time value of money. It considers the riskiness of the project.
Which of the following is an example of an opportunity cost? Multiple choice question. Money spent on advertising to take advantage of opportunities in the market Rental income likely to be lost by using a vacant building for an upcoming project Lowering taxes by increasing depreciation expenses
Rental income likely to be lost by using a vacant building for an upcoming project.
