Chapter 6: Reading Assignment

increase

If sales are made on credit, net working capital will _____.

real

Nominal interest rate - Inflation rate approximates the __________ interest rate.

relevant

Opportunity costs are classified as ____ costs in project analysis.

Equivalent annual costs

When comparing projects with unequal lives, one should use which of the following methods:

real cash flow

Which of the following refers to a cash flows purchasing power?

$2,220 OCF= EBIT - taxes + depreciation $600* (1-.30)+$1,800= $2,220

According to the bottom-up approach, what is the OCF if EBIT is $600, depreciation is $1,800, and the tax rate is 30 percent?

cash flows; earnings

Corporate finance emphasizes _____ while financial accounting emphasizes ______.

shield

Depreciation × Tax rate represent the depreciation tax ______________.

the interest rate and inflation rate are low

It is appropriate to use the approximate formula for estimating the real interest rate when:

net income

The bottom-up approach to calculating OCF starts with:

lives

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

Financial Accounting Standards Board (FASB)

The shareholders' books in the US follow the rules of the ____.

False

True or false: Opportunity costs can be ignored when determining the financial feasibility of a project.

-Cash is kept for unexpected expenditures -Credit sales are made -Equipment is purchased using long term debt

Investment in net working capital arises when ___.

Real interest rate = Nominal interest rate - Inflation rate

What is the approximate formula for estimating the real interest rate?

lowest

When bidding for a job, a competing firm can use the NPV approach to determine their bid. Once the bid is submitted, the firm will win the contract for the project if their bid is the: