CHAPTER 9 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions1. In this context, an opportunity cost refers to the value of an asset or other input that will be used in aproject. The relevant cost is what the asset or input is actually worth today, not, for example, what itcost to acquire. 2. For tax purposes, a firm would choose MACRS because it provides for larger depreciation deductionsearlier. These larger deductions reduce taxes, but have no other cash consequences. Notice that thechoice between MACRS and straight-line is purely a time value issue; the total depreciation is thesame, only the timing differs. 3. It’s probably only a mild over-simplification. Current liabilities will all be paid presumably. The cashportion of current assets will be retrieved. Some receivables won’t be collected, and some inventorywill not be sold, of course. Counterbalancing these losses is the fact that inventory sold above cost (andnot replaced at the end of the
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