One of the risks that a firm faces when engaging in foreign direct investment is the risk of the firm’s asset being seized which is a component of __________. political risk
The sale of an ordinary asset for its book value results in: no tax benefit.
Firm XYZ is going to expand operations and has notified a firm that is leasing some of Firm XYZ’s facility that it will need to find another facility and relocate. Firm XYZ’s loss of lease income is __________. a cash outflow that should be considered in the expansion decision
Which of the following is an example of an externality that will generate relevant cash flows? The additional sales revenue of complementary products.
If a firm sells a depreciable asset for less than the asset’s book value it will result in __________. a tax shield
Dann Company sold an asset at the end of a project’s life for $100,000. However, the book value of the asset was $60,000. What is the terminal cash flow of this transaction if Dann Company’s marginal tax rate is 25%? $30,000
When a business undertakes a new project it will often need to invest additional funds in net working capital to cover items such as: increased inventory levels.
Giancarlo has received an inheritance from his rich uncle and is contemplating the purchase of a Suzuki XL7. In an attempt to make a rational decision, Giancarlo has identified the following cash flow estimates:Negotiated price of new Suzuki XL 7 $24,675. Taxes and fees on a new car purchase $1,732. Proceeds from the trade-in of old car $9,285. Estimated value of the Suzuki XL7 in 5 years $7,285. Estimated value of old car in 5 years $3,572. Estimated annual repair cost on Suzuki XL7 $350. Estimated annual repair cost on old car $925. What would be Giancarlo’s initial investment in the Suzuki XL7? $17,122
When a firm acquires existing capital assets in another country it is called __________. foreign direct investment
When a firm expands operations it will also require additional investment in __________. net working capital
A replacement investment is one that: replaces existing assets.
The installed cost of an asset minus its accumulated depreciation is known as __________. book value
Sunk costs are: previous cash outflows not relevant to the project decision.
The relevant cash flows of a project are best described as: incremental cash flows.
Which of the following is an example of a sunk cost? Amount spent on a test market.
Which of the following cash flows should be included in incremental free cash flows? Capital expenditures necessary to fund the new project.
The tax savings generated due to the ability to expense or depreciate an asset for tax purposes is known as: the depreciation tax shield.
We only want to consider incremental earnings in the capital budgeting process. Incremental earnings are the: additional sales and costs associated with the project.
Which of the following formulas is the correct formula used to calculate incremental earnings? (incremental revenues – incremental costs – depreciation) x (1 – T)
The major components of a project’s cash flows are an initial investment, operating cash flows, and __________. a terminal cash flow
Which of the following is a relevant opportunity cost that should be considered an incremental cash flow? Lost facility rental income
Grover Manufacturing Inc. is considered the acquisition of a new piece of machinery for $45,000 that will cost another $10,000 to have shipped and installed. What is the cost of this new asset for project evaluation purposes? $55,000
The relevant cash flows of a project are best described as __________. incremental cash flows
Giancarlo has received an inheritance from his rich uncle and is contemplating the purchase of a Suzuki XL7. In an attempt to make a rational decision, Giancarlo has identified the following cash flow estimates: Negotiated price of new Suzuki XL 7 $24,675. Taxes and fees on a new car purchase $1,732. Proceeds from the trade-in of old car $9,285. Estimated value of the Suzuki XL7 in 5 years $7,285. Estimated value of old car in 5 years $3,572. Estimated annual repair cost on Suzuki XL7 $350. Estimated annual repair cost on old car $925. What would be Giancarlo’s operating cash flow in year 5? -$575
An incremental cash flow valuation considers: all project cash flows including cannibalization.

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