f3000 chapter 12
this is used as a measure of the total amount of available cash flow from a project
free cash flow
This is the IRS convention that requires that all property placed in service during a given period is assumed to be placed in service at the midpoint of that period.
half year convention
a local bank is considering adding a new atm to their lobby. they will need another phone line to provide communications which has a monthly cost of $50 per month. this is an example of _______
incremental cash flow
what are you looking for on the pro forma or new project?
incremental cash flows or cash flow changes
abc engineering just bought a new machine. all of the following are examples of incremental cash flows except___________
interest expense on the loan used to purchase the machine
the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements is referred to as the _______
pro forma analysis
this is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements
pro forma analysis
pro forma analysis
process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements
this is the concept that a units sales will follow an approximate bell shaped curve versus a steady sales life
product life cycle
accelerated depreciation allows firms to
receive more of the dollars of depreciation earlier in the asset's life
when looking at these types of projects, one must consider any cash flows that arise from surrendering old equipment before the end of its useful life
replacement
A local bank is contemplating opening a new branch bank in a large superstore across town from their main office. It is estimated that the new branch will generate $20,000 after expenses each month. The manager wonders if all these revenues should be considered an incremental cash flow. Given this information, which of the following statements is correct?
some amount less than the $20,000 is incremental because of substitutionary effects
Coke is planning on marketing a new drink called Very Berry Coke which is a mixture of raspberry and blackberry flavors blended to perfection and added to the highly secret Coca-Cola formula. This new product is expected to reduce the sales of their existing product, Cherry Coke, by $10 million dollars per year. This is an example of a ____________
substitutionary effect
Effects that arise from a new product or service that decrease sales of the firm's existing products or services are referred to as
substitutionary effects
If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a
sunk cost
with regard to depreciation, the time value of money concept tells us that
taking the depreciation expense sooner is always better
due to rapid growth, a computer superstore is contemplating expanding by adding another location. which of the following items should the financial officer not include in estimating the cash flow associated with this expansion?
the company spent 100,000 six months ago in a major advertising campaign which will help the new store become profitable sooner
A manufacturing firm is planning on expanding its existing operations. The expansion project is significant and will require the firm to house the expansion in a different location. The firm is considering building on a lot they own across town. The lot is currently vacant and it was paid for nearly 20 years ago. Given this information, which of the following statements is correct?
the lot is an incremental cash flow because it represents an opportunity cost
all of the following can be included in the depreciable basis of an asset except
variable costs
As new capital budgeting projects arise, we must estimate
when such projects will require cash flows
is accelerated depreciation allowed by the irs?
yes and allows people to take more depreciation than otherwise would at front end of project than straight line depreciation
section 179 deductions
- Assets can be expensed immediately • Up to $500,000* of property placed in service each year - Targeted at helping small businesses
what property is eligible for section 179 deductions?
-machinery and equipment -furniture and fixtures -certain qualified real property
a decrease in net working capital (NWC) is treated as a
cash inflow
concerning incremental project cash flow, this is a cost one would never count as an expense of the project
financing costs
incremental cash flows
Cash flow changes that a new project causes throughout the firm
which of the following is not included when calculating the depreciable basis for real property
financing fees
when calculating operating cash flow for a project, one would calculate it as being mathematically equal to which of the following?
EBIT - taxes + depreciation
one way to account for flotation costs of raising capital is to
adjust the projects initial cash flow so that it will reflect the flotation costs
ab mining company just commissioned a firm to identify if an unused portion of their mine contains any silver or gold at a cost of $125000. this is an example of
a sunk cost
which of the following statements is correct with respect to section 179 deductions?
all of these are correct statements
sunk costs
an expense or obligation that the firm is compelled to pay regardless of whether the project is undertaken
for which situation below would one need to "smooth out" the variation in each set of cash flows so that each becomes a perpetuity?
choosing between alternative assets with differing lives
the research chemists at megaclean created a new cleaner that keeps car and truck tires shiny and clean for one year. they believe that this product will be highly successful and will attract customers to purchase their existing lines of household cleaning products. this is an example of__________
complementary effect
effects that arise from a new product or service that increase sales of the firms existing products or services are referred to as
complementary effects
an assets cost plus the amounts you paid for items such as sales tax, freight charges, and installation and testing fees is referred to as the
depreciable basis
what all are you calculating in a project cash flow?
depreciation, operating cash flow, changes in gross fixed assets, net working capital
abc engineering just purchased a new machine. all of the following are examples of incremental cash flows except _______
developmental costs to determine which machine would work best with their unique process
The best approach to convert an infinite series of asset purchases into a perpetuity is known as the
equivalent annual cost approach
Section 179 allows a business, with certain restrictions, to do which of the following?
expense the asset immediately in the year of purchase
all of the following are incremental cash flows attributable to the project except
financing costs
receiving more depreciation at the beginning of an assets life
makes the project more viable