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Chapter_13 - CHAPTER 13 CAPITAL BUDGETING ESTIMATING CASH...

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Chapter 13 - Page 1 CHAPTER 13 CAPITAL BUDGETING: ESTIMATING CASH FLOWS AND ANALYZING RISK (Difficulty: E = Easy, M = Medium, and T = Tough) True-False Easy: Relevant cash flows Answer: b Diff: E 1. Since the focus of capital budgeting is on cash flows rather than on net income, changes in noncash balance sheet accounts such as inventory are not relevant in the analysis. a. True b. False Relevant cash flows Answer: a Diff: E 2. If an investment project would make use of land which the firm currently owns, the project should be charged with the opportunity cost of the land. a. True b. False Relevant cash flows Answer: b Diff: E 3. When calculating the cash flows for a project, you should include interest payments. a. True b. False Relevant cash flows Answer: a Diff: E 4. Any cash flow that can be classified as incremental is relevant in a capital budgeting project analysis. a. True b. False Net operating working capital Answer: b Diff: E 5. Changes in net operating working capital do not need to be considered in capital budgeting cash flow analysis as long as the nominal (undiscounted) values of the changes are identical in each time period. a. True b. False
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