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Chapter 010 Making Capital Investment Decisions Multiple Choice Questions 1. The changes in a firm's future cash flows that are a direct consequence of accepting a project are called _____ cash flows. A . incremental b. stand-alone c. after-tax d. net present value e. erosion SECTION: 10.1 TOPIC: INCREMENTAL CASH FLOWS TYPE: DEFINITIONS 2. The evaluation of a project based solely on its incremental cash flows is the basis of the: a. future cash flow method. B . stand-alone principle. c. dividend growth model. d. salvage value model. e. equivalent cost principle. SECTION: 10.1 TOPIC: STAND-ALONE PRINCIPLE TYPE: DEFINITIONS 3. A cost that has already been incurred and cannot be recouped is a(n): a. salvage value expense. b. net working capital expense. C . sunk cost. d. opportunity cost. e. erosion cost. SECTION: 10.2 TOPIC: SUNK COSTS TYPE: DEFINITIONS 10-1 Chapter 010 Making Capital Investment Decisions 4. The most valuable investment given up if an alternative investment is chosen is a(n): a. salvage value expense. b. net working capital expense. c. sunk cost. D . opportunity cost. e. erosion cost. SECTION: 10.2 TOPIC: OPPORTUNITY COSTS TYPE: DEFINITIONS 5. Erosion is best described as: a. expenses that have already been incurred and cannot be reversed. b. net working capital expenses. C . the cash flows of a new project that come at the expense of a firm's existing cash flows. d. the next alternative that is forfeited when a fixed asset is utilized for a project. e. the differences in a firm's cash flows with and without a particular project. SECTION: 10.2 TOPIC: EROSION TYPE: DEFINITIONS 6. A pro forma financial statement is one that: A . projects future years' operations. b. is expressed as a percentage of the total assets of the firm. c. is expressed as a percentage of the total sales of the firm. d. is expressed relative to a chosen base year's financial statement. e. reflects the past and current operations of a firm. SECTION: 10.3 TOPIC: PRO FORMA FINANCIAL STATEMENTS TYPE: DEFINITIONS 10-2 Chapter 010 Making Capital Investment Decisions 7. The depreciation method currently allowed under U.S. tax law governing the accelerated write-off of property under various lifetime classifications is called: a. FIFO. B . MACRS. c. straight-line depreciation. d. sum-of-years depreciation. e. erosion. SECTION: 10.4 TOPIC: MACRS DEPRECIATION TYPE: DEFINITIONS 8. The tax savings generated as a result of a firm's depreciation expense is called the: a. aftertax depreciation savings. b. depreciable basis. C . depreciation tax shield. d. operating cash flow. e. aftertax salvage value. SECTION: 10.5 TOPIC: DEPRECIATION TAX SHIELD TYPE: DEFINITIONS 9. The annual annuity stream of payments with the same present value as a project's costs is called the project's _____ cost. ... View Full Document

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