FRL 301 - CHAPTER 10 - basic knowledge terms

What can increase the bid price

an increase in the required rate of return

Changes in the net working capital requirements:

can affect the cash flows of a project every year of the project's life

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

ACRS

the bid price always assumes which one of the following:

the net present value of the project is zero

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?

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

Which one of the following is a correct method for computing the operating cash flow of a project assuming that the interest expense is equal to zero?

NET INCOME + DEPRECIATION

The depreciation tax shield is best defined as the:

amount of tax that is saved because of the depreciation expense

The net book value of equipment will:

decrease slower under straight-line depreciation than under MACRS

Increasing which one of the following will increase the operating cash flow assuming that the bottom-up approach is used to compute the operating cash flow?

depreciation expense

Decreasing which one of the following will increase the accpetability of a project?

equivalent annual cost

The annual annuity stream of payments that has the same present value as a project's costs is referred to as which one of the following?

equivalent annual cost

Which one of the following best describes pro forma financial statements

financial statements showing projected values for future time periods

the top-down approach to computing the operating cash flow

ignores noncash expenses

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

incremental

The difference between a firm's 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 projects

incremental cash flows

The operating cash flow for a project should exclude which one of the following?

interest expense

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

opportunity cost

the fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles

stand-alone principle

Which one of the following costs was incurred in the past and cannot be recouped?

sunk

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 the salvage value of that assets

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

The bottom-up approach to computing the operating cash flow applies only when:

the interest expense is equal to zero

the bid price is:

the minimum price you should charge if you want to financially breakeven

A company that utilizes the MACRS system of depreciation:

will have a great tax sheild in year two of a project that it would have if the firm had opted for straight-line depreciation, given the same depreciation life