Chapter 9 quiz Capital budgeting and cash flow

Ace your homework & exams now with Quizwiz!

3 reasons investment projects are generated

1). growth opportunities 2). cost reduction opportunities 3). meet legal requirements and health and safety standards

4 parts of net investment

1). the installed costs of the assets 2). plus any initial net working capital requirements 3). less any cash inflows from the sale of replacement assets 4). plus or minus the tax consequences associated with the sale of existing assets and/or the purchase of new assets

annual depreciation amount

= installed cost / number of years over which the asset is depreciated

4 key steps in capital budgeting process

1). generating investment project proposals 2). estimating cash flows 3). evaluating alternatives and selecting projects to be implemented 4). reviewing a project's performance after it has been implemented and post-auditing its performance after termination

NCF

= change in OEAT + change in dep. - change in NWC

net (operating) cash flows

NCF

net cash flow definition

In the last year of a project's life, what may have to be modified to reflect the recapture of the accumulated net working capital investment and any after-tax salvage value received

net investment

NINV

independent, mutually exclusive, contingent

What 3 ways can projects be classified?

net operating cash flow

equal to the change in net operating earnings after tax plus the change in depreciation minus the change in net working capital investment requirements associated with the adoption of a project

cost of capital

defined as the cost of funds supplied to a firm; represents the required rate of return a firm must earn on its investments and thus is an important input in the capital budgeting process

net investment

includes the project cost plus any necessary increases in initial net working capital minus any proceeds from the sale of the old asset(s) (in the case of replacement decisions) plus or minus the taxes associated with the sale of the old asset(s) and/or the purchase of the new asset(s)

3 ways projects are classified

independent, mutually exclusive, contingent

asset replacement project

involves retiring one asset and replacing it with a more efficient one

incremental after-tax basis; indirect effects

project cash flows should be measured on a what and should include all of the what the project will have on the firm?

sunk costs

represent outlays that have already been made or committed and that cannot be recovered

asset expansion project

requires a firm to invest funds in additional assets to increase sales or reduce costs

opportunity cost

resources of a firm used in an investment project should be valued at their what based upon the cash flows these resources could generate in their next-best alternative use

contingent project

the acceptance of this depends on the adoption of one or more other projects

independent project

the acceptance of this does not directly eliminate other projects from consideration

mutually exclusive project

the acceptance of this precludes other alternatives

Modified Accelerated Cost Recovery System (MACRS)

the economic viability of a project can be affected by special tax considerations, such as the use of accelerated depreciation methods like what?

net investment

the initial outlay required to implement a project

capital budgeting

the process of planning for purchases of assets whose cash flows are expected to continue beyond one year

net (operating) cash flows

these are the incremental changes in a firm's operating cash flows that result from investing in the project

net (operating) cash flows

these include changes in the firm's revenues, operating costs, depreciation, taxes, and net working capital with and without the project

sunk costs

what type of costs should not be considered when evaluating an investment project?


Related study sets

Link+ A1 thema 7.1 Wanneer is het spreekuur?

View Set

17) Direct, Online, Social Media, and Mobile Marketing MC

View Set

CONCEPTS OF TEACHING AND LEARNING

View Set

Prep U: Culture, Spirituality, Etc.

View Set

Chapter 43 Loss, Grief, and Dying

View Set

Deleon Chemistry- Chapter 4 test answers excluding math problems

View Set

Ch 11: The Psychiatric-Mental Health Nursing Process

View Set

Issues in Education Mid-Term Study Guide

View Set

Persia and Greece Ch 6 AP World Studies

View Set

APES - The ULTIMATE AP Exam Quizlet

View Set