intro to finance chapter 10

The difference between a firm’s future 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 project’s: incremental cash flows
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 option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following? opp. 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.
Which one of the following best describes pro forma financial statements? Financial statements showing projected values for future time periods.
Which one of the following is the depreciation method that allows accelerated write-offs of property under various lifetime classifications? ACRs
The depreciation tax shield is best defined as the: The depreciation tax shield is best defined as the:
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 should the firm accept the wreath project.
The stand-alone principle advocates that project analysis should be based solely on which one of the following costs? incremental
Which one of the following is an example of a sunk cost? $1,200 paid to repair a machine last year.
G & L Plastic Molders spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost? sunk
Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach? Selling fewer hot dogs because hamburgers were added to the menu.
Which one of the following should not be included in the analysis of a new product? Money already spent for research and development of the new product.
All of the following are related to a proposed project. Which one of these should be included in the cash flow at Time 0? initial investment in inventory to support the project
Changes in the net working capital requirements: Can affect the cash flows of a project every year of the project’s life.
Net working capital: Can create either an initial cash inflow or outflow.
Pro forma statements for a proposed project should generally do all of the following except: be compiled on stand along basisinclude all project-related fixed asset acquisitions and disposalsinclude all the incremental cash flows related to the projectinclude taxesDO NOT INCLUDE INTEREST EXPENSE
A company that utilizes the MACRS system of depreciation: Will have a greater depreciation tax shield in Year 2 than in Year 1.
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 asset.
The net book value of equipment will: Decrease slower under straight-line depreciation than under MACRS.
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 operating cash flow for a project should exclude which one of the following? interest expenseinclude taxes, variable costs, fixed costs, depreciation tax shield
The bottom-up approach to computing the operating cash flow applies only when: The interest expense is equal to zero.
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.
Webster & Moore paid $148,000, in cash, for equipment three years ago. At the beginning of last year, the company spent $21,000 to update the equipment with the latest technology. The company no longer uses this equipment in its current operations and has received an offer of $96,000 from a firm that would like to purchase it. The firm is debating whether to sell the equipment or to expand its operations so that the equipment can be used. The equipment, including the updates, has a book value of $44,500. When evaluating the expansion option, what value, if any, should the firm assign to this equipment as an initial cost of the project? 96,000

Leave a Reply

Your email address will not be published. Required fields are marked *