Ch 6 - Chapter 06 - Making Capital Investment Decisions...

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Chapter 06 - Making Capital Investment Decisions 6-1 Chapter 06 Making Capital Investment Decisions Answer Key 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 Difficulty level: Easy Topic: INCREMENTAL CASH FLOWS Type: DEFINITIONS 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 Difficulty level: Easy Topic: EQUIVALENT ANNUAL COST Type: DEFINITIONS
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Chapter 06 - Making Capital Investment Decisions 6-2 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. Difficulty level: Easy Topic: SUNK COSTS Type: DEFINITIONS 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. Difficulty level: Easy Topic: OPPORTUNITY COSTS Type: DEFINITIONS 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. Difficulty level: Easy Topic: EROSION COSTS Type: DEFINITIONS
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Chapter 06 - Making Capital Investment Decisions 6-3 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. Difficulty level: Easy Topic: PRO FORMA FINANCIAL STATEMENTS Type: DEFINITIONS 7. The depreciation method currently allowed under U.S. 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 Difficulty level: Easy Topic: MACRS DEPRECIATION Type: DEFINITIONS 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. Difficulty level: Easy Topic: DEPRECIATION TAX SHIELD Type: DEFINITIONS
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Chapter 06 - Making Capital Investment Decisions 6-4 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.
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This note was uploaded on 03/03/2012 for the course ECON 106 taught by Professor Sengupta,j during the Fall '08 term at UCSB.

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Ch 6 - Chapter 06 - Making Capital Investment Decisions...

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