Finance Flashcards

Finance chapter 9

any changes to a firm’s projected future cash flows are caused by adding a new project are referred to as which one of the following? C. incremental cash flows
which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows? E. stand-alone principle
a cost that should be ignored when evaluating a project because because that cost has already been incurred and cannot be recouped is referred to as which type of cost? E. sunk
which one of the following terms refers to the best option that was foregone when a particular investment is selected D. opportunity cost
which one of the following terms is most commonly used to describe the cash flows of a new project that are simply an offset of reduced cash flows for a current project C. erosion
a pro forma financial statement is a financial statement that D. projects future years’ operations
the amount by which a firms tax bill is reduced as a result of the depreciation expense is referred to as the depreciation A. tax shield
which one of the following refers to a method of increasing the rate at which an asset is depreciated? D. accelerated cost recovery system
forecasting risk is best defined as E. estimation risk
Jamie is analyzing the estimated net present value of a project under various what if scenarios. the type of analysis that Jamie is doing is best described as C. scenario analysis
mark is analyzing a proposed project to determine how changes in the variable costs per unit would affect the project’s net present value. what type of analysis is mark conducting? A. sensitivity analysis
the opportunities that a manager has to modify a project once it has started are called B.managerial options
contingency planning focuses on the D. managerial options implicit in a project
which one of the following refers to the option to expand into related businesses in the future? A. strategic option
kyle electric has 3 positive net present value opportunities. unfortunately, the firm has not been able to find financing for any of these projects. which one of the following terms best describes the firms situation? B. capital rationing
marcos enterprises has 3 separate divisions. the firm allocates each division $1.5 million per year for capital purchases. which one of the following terms applies to this allocation process? A. soft rationing
the blackwell group is unable to obtain financing for any new projects under any circumstances. which term best applied to this situation? C. hard rationing
the shoe box is considering adding a new line of winter footwear to its product lineup. which of the following are relevant cash flows for this project?I. decreased revenue from products currently being offered it this new footwear is added to the lineupII. revenue from the new line of footwearIII. money spent to date looking for a new product line to add to the store’s offeringsIV. cost of new counters to display the new line of footwear D. I, II, and IV only

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