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Chapter 10 - Making Capital Investment Decisions Multiple Choice Questions 1. The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the project's: A. incremental cash flows. B. internal cash flows. C. external cash flows. D. erosion effects. E. financing cash flows. Refer to section 10.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 10-1 Section: 10.1 Topic: Incremental cash flows 2. The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles? A. underlying value principle B. stand-alone principle C. equivalent cost principle D. salvage principle E. fundamental principle Refer to section 10.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 10-1 Section: 10.1 Topic: Stand-along principle 3. Which one of the following costs was incurred in the past and cannot be recouped? A. incremental B. side C. sunk D. opportunity E. erosion Refer to section 10.2 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 10-1 Section: 10.2 Topic: Sunk cost 4. The option that is foregone so that an asset can be utilized by a specific project is referred to as which one of the following? A. salvage value B. wasted value C. sunk cost D. opportunity cost E. erosion Refer to section 10.2 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 10-1 Section: 10.2 Topic: Opportunity cost 5. Which one of the following best describes the concept of erosion? A. expenses that have already been incurred and cannot be recovered B. change in net working capital related to implementing a new project C. the cash flows of a new project that come at the expense of a firm's existing cash flows D. the alternative that is forfeited when a fixed asset is utilized by a project E. the differences in a firm's cash flows with and without a particular project Refer to section 10.2 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 10-1 Section: 10.2 Topic: Erosion 6. Which one of the following best describes pro forma financial statements? A. financial statements expressed in a foreign currency B. financial statements where the assets are expressed as a percentage of total assets and costs are expressed as a percentage of sales C. financial statements showing projected values for future time periods D. financial statements expressed in real dollars, given a stated base year E. financial statements where all accounts are expressed as a percentage of last year's values Refer to section 10.3 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 10-1 Section: 10.3 Topic: Pro forma financial statements 7. Which one of the following is the depreciation method which allows accelerated write-offs of property under various lifetime classifications? ... View Full Document

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