Question 1

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Accepted Answer

A)   Changes in net operating working capital attributable to the project.
B)   Previous expenditures associated with a market test to determine the feasibility of the project, provided those costs have been expensed for tax purposes.
C)   The value of a building owned by the firm that will be used for this project.
D)   A decline in the sales of an existing product, provided that decline is directly attributable to this project.
E)   The salvage value of assets used for the project that will be recovered at the end of the project's life.F) A) and E)
G) B) and D)

Question 2

Sensitivity analysis measures a project's stand-alone risk by showing how much the project's NPV (or IRR) is affected by a small change in one of the input variables, say sales. Other things held constant, with the size of the independent variable graphed on the horizontal axis and the NPV on the vertical axis, the steeper the graph of the relationship line, the more risky the project, other things held constant.

Accepted Answer

A) True 
 B)False

Question 3

Any cash flows that can be classified as incremental to a particular project--i.e., results directly from the decision to undertake the project--should be reflected in the capital budgeting analysis.

Accepted Answer

A) True 
 B)False

Question 4

Accelerated depreciation has an advantage for profitable firms in that it moves some cash flows forward, thus increasing their present value. On the other hand, using accelerated depreciation generally lowers the reported current year's profits because of the higher depreciation expenses. However, the reported profits problem can be solved by using different depreciation methods for tax and stockholder reporting purposes.

Accepted Answer

A) True 
 B)False

Exam 12: Cash Flow and Risk

Correct Answer
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Correct Answer
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Any cash flows that can be classified as incremental to a particular project--i.e., results directly from the decision to undertake the project--should be reflected in the capital budgeting analysis.

Correct Answer
verified

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Correct Answer
verified

Exam 12: Cash Flow and Risk

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Any cash flows that can be classified as incremental to a particular project--i.e., results directly from the decision to undertake the project--should be reflected in the capital budgeting analysis.

Correct AnswerverifiedShow Answer

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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