02 Jan The increase you realize

Question 1

2 / 2 pts

The changes in a firm’s future cash flows that are a direct consequence of accepting a project are called _____ cash flows.

net present value

incremental

after-tax

erosion

stand-alone

Question 2

2 / 2 pts

The cash flow tax savings generated as a result of a firm’s tax-deductible depreciation expense is called the:

depreciable basis.

after-tax salvage value.

after-tax depreciation savings.

depreciation tax shield.

operating cash flow.

Question 3

2 / 2 pts

The pro forma income statement for a cost reduction project:

will generally reflect no incremental sales.

will always reflect a negative project operating cash flow.

has to be prepared reflecting the total sales and expenses of a firm.

will reflect a reduction in the sales of the firm.

cannot be prepared due to the lack of any project related sales.

Question 4

2 / 2 pts

One purpose of identifying all of the incremental cash flows related to a proposed project is to:

isolate the total sunk costs so they can be evaluated to determine if the project will add value to the firm.

make each project appear as profitable as possible for the firm.

identify any and all changes in the cash flows of the firm for the past year so they can be included in the analysis.

eliminate any cost which has previously been incurred so that it can be omitted from the analysis of the project.

include both the proposed and the current operations of a firm in the analysis of the project.

IncorrectQuestion 5

0 / 2 pts

The cash flow from projects for a company is computed as the:

sum of the incremental operating cash flow and after-tax salvage value of the project.

net income generated by the project, plus the annual depreciation expense.

sum of the incremental operating cash flow, capital spending, and net working capital expenses incurred by the project.

sum of the sunk costs, opportunity costs, and erosion costs of the project.

net operating cash flow generated by the project, less any sunk costs and erosion costs.

Question 6

2 / 2 pts

The annual annuity stream of payments with the same present value as a project’s costs is called the project’s _____ cost.

sunk

erosion

incremental

equivalent annual

opportunity

Question 7

2 / 2 pts

A pro forma financial statement is one that:

is expressed relative to a chosen base year’s financial statement.

projects future years’ operations.

reflects the past and current operations of the firm.

is expressed as a percentage of the total assets of the firm.

is expressed as a percentage of the total sales of the firm.

IncorrectQuestion 8

0 / 2 pts

All of the following are anticipated effects of a proposed project. Which of these should be included in the initial project cash flow related to net working capital?

I. An inventory decrease of $5,000

II. An increase in accounts receivable of $1,500

III. An increase in fixed assets of $7,600

IV. A decrease in accounts payable of $2,100

I, II, III, and IV

II and IV only

I and II only

I, II, and IV only

I and III only

Question 9

2 / 2 pts

The depreciation method currently allowed under U.S. tax law governing the accelerated write-off of property under various lifetime classifications is called _____ depreciation.

curvilinear

straight-line

FIFO

MACRS

sum-of-years digits

Question 10

2 / 2 pts

Which one of the following will decrease net working capital of a firm?

A decrease in accounts payable

A decrease in accounts receivable

A decrease in fixed assets

An increase in the firm’s checking account balance

An increase in inventory

Question 11

2 / 2 pts

You spent $500 last week fixing the transmission in your car. Now, the brakes are acting up and you are trying to decide whether to fix them or trade the car in for a newer model. In analyzing the brake situation, the $500 you spent fixing the transmission is a(n) _____ cost.

incremental

opportunity

fixed

sunk

relevant

Question 12

2 / 2 pts

Net working capital:

is the only expenditure where at least a partial recovery can be made at the end of a project.

expenditures commonly occur at the end of a project.

requirements generally, but not always, create a cash inflow at the beginning of a project.

can be ignored in project analysis because any expenditure is normally recouped by the end of the project.

is frequently affected by the additional sales generated by a new project.

Question 13

2 / 2 pts

Erosion can be explained as the:

loss of current sales due to a new project being implemented.

additional income generated from the sales of a newly added product.

loss of cash due to the expenses required to fix a parking lot after a heavy rain storm.

loss of revenue due to customer theft.

loss of revenue due to employee theft.

Question 14

2 / 2 pts

Which of the following are examples of an incremental cash flow?

I. An increase in accounts receivable

II. A decrease in net working capital

III. An increase in taxes

IV. A decrease in the cost of goods sold

I, III, and IV only

I, II, III, and IV

I and IV only

I and III only

III and IV only

Question 15

2 / 2 pts

The increase you realize in buying power as a result of owning a bond is referred to as the _____ rate of return.

realized

risk-free

inflated

nominal

real