TIF_ch07 - Test Bank Chapter 7: CAPITAL BUDGETING CASH...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Test Bank Chapter 7: CAPITAL BUDGETING CASH FLOWS EFS I. True or False (Definitions and Concepts) T 1. When we compute a project’s NPV or IRR, the discount rate includes in it the opportunity cost for obtaining financing for the project. F 2. MACRS is a credit against taxes due based on new capital investment. (FALSE: Should be investment tax credit instead of MACRS.) T 3. The net operating cash flow, CFAT (cash flow after tax) , can be expressed as (ΔR – ΔE) minus the tax liability on this amount. T 4. Non-operating cash flows are cash flows not associated with operations and can occur at various points during the life of a capital project. T 5. The net salvage value is the after-tax net cash flow for terminating the project. F 6. The term salvage value typically refers to the after-tax difference between the sale price (S) and the clean up and removal expense (REX). (FALSE: Should be before-tax instead of after-tax.) F 7. Sunk costs occur in the past and therefore should be considered in capital budgeting decision-making. (FALSE: Should be should not be considered instead of should be considered.) T 8. Suppose a firm has discovered how to make a product that would be better than one of its existing products. For example, suppose Proctor & Gamble created a new soap. Such a new product can cause what is called erosion of one or more existing products. F 9. Suppose a firm has discovered how to make a product that would be better than one of its existing products. For example, suppose Boeing created a new airplane. Such a new product can cause what is called enhancement of one or more existing products. (FALSE: Should be erosion instead of enhancement.) T 10. Inflation effects can be complex because asset value is a function of both the required return and the expected future cash flows. T 11. The incremental financing costs are implicitly included in the project’s cost of capital––its required return. F 12. Expansion decisions are, in effect, decisions whether to continue producing a product and even whether to remain in that line of business. (FALSE: Should be Replacement instead of Expansion.) F 13. If we choose an asset with a longer replacement cycle, then we have an additional option, namely, there is less chance that a mechanically sound machine will be made useless by a technological advance. (FALSE: Should be shorter replacement cycle instead of longer replacement cycle.)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
F 14. Replacement decisions are complicated when the choice involves choosing between two new assets with the same lives. (FALSE: Should be different lives instead of the same lives.) T 15. The relevant cash flow is the amount left after all taxes have been paid. II. Multiple Choice (Definitions and Concepts) d 16. There are five very important things to remember about cash flow estimation. These include which of the following?
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/21/2011 for the course ACC 452 taught by Professor Mr.cula during the Spring '10 term at Abraham Baldwin Agricultural College.

Page1 / 21

TIF_ch07 - Test Bank Chapter 7: CAPITAL BUDGETING CASH...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online