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Unformatted text preview: ch7 Student: _______________________________________________________________________________________ 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 2. The annual annuity stream of payments with the same present value as a project's costs is called the project's _____ cost. A. incremental B. sunk C. opportunity D. erosion E. equivalent annual 3. A cost that has already been paid, or the liability to pay has already been incurred, is a(n): A. salvage value expense. B. net working capital expense. C. sunk cost. D. opportunity cost. E. erosion cost. 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. 5. The cash flows of a new project that come at the expense of a firm's existing projects are called: A. salvage value expenses. B. net working capital expenses. C. sunk costs. D. opportunity costs. E. erosion costs. 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 the firm. 7. The depreciation method currently allowed under US tax law governing the accelerated write-off of property under various lifetime classifications is called _____ depreciation. A. FIFO B. MACRS C. straight-line D. sum-of-years digits E. curvilinear 8. The cash flow tax savings generated as a result of a firm's tax-deductible depreciation expense is called the: A. after-tax depreciation savings. B. depreciable basis. C. depreciation tax shield. D. operating cash flow. E. after-tax salvage value. 9. The cash flow from projects for a company is computed as the: A. net operating cash flow generated by the project, less any sunk costs and erosion costs. B. sum of the incremental operating cash flow and after-tax salvage value of the project. C. net income generated by the project, plus the annual depreciation expense. D. sum of the incremental operating cash flow, capital spending, and net working capital expenses incurred by the project. E. sum of the sunk costs, opportunity costs, and erosion costs of the project. 10. Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates. A. real B. nominal C. effective D. stripped E. coupon 11. The increase you realize in buying power as a result of owning a bond is referred to as the _____ rate of return....
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- Spring '11