Ch 10

A company that utilizes the MACRS system of depreciation:

will have a greater tax shield in year two of a project than it would have if the firm had opted for straight-line depreciation, given the same depreciation life.

the operating cash flow for a project should exclude

interest expense

Which one of the following will increase a bid price?

An increase in the required rate of return

Which one of the following is a project cash inflow? ignore any tax effects

Decrease in A/R

Which of the following should be included in the analysis of a new product? I. money already spent for research and development of the new product II. reduction in sales for a current product once the new product is introduced III. increase in accounts receivable needed to finance sales of the new product IV. market value of a machine owned by the firm which will be used to produce the new product

II, III, and IV

The stand-alone principle advocates that project analysis should be based solely on which one of the following costs?

Incremental

The net book value of equipment will:

decrease slower under straight-line depreciation than under MACRS.

Which one of the following best describes pro forma financial statements?

financial statements showing projected values for future time periods

You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines which have differing initial and ongoing costs and differing lives. Whichever machine is purchased will be replaced at the end of its useful life. You should select the machine which has the:

lowest equivalent annual cost.

Which one of the following best describes the concept of erosion?

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