FNCE 3010 Lesson 5: Capital Budgeting Cash Flows

Which one of the following is the depreciation method that allows accelerated write-offs of property under various lifetime classifications?

ACRS

The depreciation tax shield is best defined as the:

Amount of tax that is saved because of the depreciation expense

What are pro-forma statements?

Financial statements showing projected values for future time periods

Kelley's Baskets makes handmade baskets for distribution to upscale retail outlets. The firm is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project? -Storing supplies in the same space currently used for materials storage. -Utilizing the basket manager to oversee wreath production. -Hiring additional employees to handle the increased workload should the firm accept the wreath project. -Researching the market to determine if wreath sales might be profitable before deciding to proceed. -Planning on lower interest expense by assuming the proceeds of the wreath sales will be used to reduce the firm's currently outstanding debt

Hiring additional employees to handle the increased workload should the firm accept the wreath project

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

The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following?

Opportunity Cost

G & L Plastic Molders spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?

Sunk cost

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?

Tax due on salvage value of that asset

What is erosion?

The cash flows of a new project coming at the expense of a firms existing cash flows

Changes in the net working capital requirements:

can affect the cash flows of a project every year of the projects life