Which of the following cash flows are added to the present value of operating cash flows to make a cost-cutting decision? More than one answer may be correct. Multiple select question. The present value of net working capital recovered at the end of the project The present value of net working capital invested The present value of depreciation tax shields The present value of initial investment

Which of the following cash flows are added to the present value of operating cash flows to make a cost-cutting decision? More than one answer may be correct. Multiple select question. The present value of net working capital recovered at the end of the project The present value of net working capital invested The present value of depreciation tax shields The present value of initial investment

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 7QTD

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Why are interest charges not deducted when a projects cash flows are calculated for use in a capital budgeting analysis?
which of the following should not be included in the cash flows for project analysis? Opportunity costs side effects or erosion sunk costs operating cash flows for all years The initial investment in net working capital
Which of the following cash flows are not considered in the calculation of the annual cash-flow for a capital investment proposal? Incremental costs. O Taxes. O Depreciation on the project. Proceeds from selling an old asset which is being replaced by a new asset. Change in revenue.
What name is given to the time value of money technique that discounts the after-tax cash flows for a project over its life to time period zero using the company’s minimum desired rate of return? a. net present value method b. capital rationing methodc. payback method d. average rate of return method e. accounting rate of return method
Which of the following cash flows should not be considered when evaluating a project? Changes in working capital Shipping and installation costs Sunk costs Opportunity costs Externalities
Which of the following statements is true regarding the payback period? Multiple Choice It measures the length of time that it takes for a project to recover its initial cost from the discounted net cash inflows that it genera It measures the length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates. It measures the length of time that it takes for a project to recover its initial cost from the incremental net operating income that It measures the length of time that it takes for a project to recover its initial cost from the discounted incremental net operating it generates.
Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a. Shipping and installation costs. b. Cannibalization effects. c. Opportunity costs. d. Sunk costs that have been expensed for tax purposes. e. Changes in net working capital. Please explain your answer for better understanding.
Which methods of evaluating a capital investment project ignore the time value of money? Multiple Choice Net present volue and accounting rate of retum, Accounting rate of return and internal rate of return. Internal rate of return and payback perlod.
In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. True or False The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash outflows with the present value of its cash inflows. True or False The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the company's cost of capital. True or False An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project. True False The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero. True False The production budget is typically prepared before the direct materials budget. True False The selling and administrative budget is typically prepared…
The operating cash flows of a project: includes tax. none of the others is correct are equal to the project's total projected net income. decrease when net working capital increases. are unaffected by the depreciation method selected.
A characteristic of the payback method is that it: (See your Chapter 25 notes, page 9) Uses accrual accounting inflows in the numerator of the calculation Uses the estimated expected useful life of the asset in the denominator of the calculation Incorporates cash flows received after the payback period has been reached Is based on accounting income Incorporates the time value of money Ignores total project profitability
Which of the following is an advantage of using the payback period method for project selection? The payback period method considers the time value of money The payback period method considers accounting income The payback period method shows when funds will be available for reinvestment The payback period method ignores the time value of money