The annual annuity stream of payments with the same

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
6-30

Chapter 06 - Making Capital Investment Decisions
3. A cost that has already been paid, or the liability to pay has already been incurred, is a(n):
Difficulty level: Easy
Topic: SUNK COSTS
Type: DEFINITIONS
4. The most valuable investment given up if an alternative investment is chosen is a(n):
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:
Difficulty level: Easy
Topic: EROSION COSTS
Type: DEFINITIONS
6-31

Chapter 06 - Making Capital Investment Decisions
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.
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:
Difficulty level: Easy
Topic: DEPRECIATION TAX SHIELD
Type: DEFINITIONS
6-32

Chapter 06 - Making Capital Investment Decisions
9. The cash flow from projects for a company is computed as the:
Difficulty level: Medium
Topic: CASH FLOW
Type: DEFINITIONS