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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. Difficulty level: Medium Topic: CASH FLOW Type: DEFINITIONS 10. Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates. Difficulty level: Medium Topic: REAL RATES Type: DEFINITIONS 11. The increase you realize in buying power as a result of owning a bond is referred to as the _____ rate of return. Difficulty level: Easy Topic: REAL RATE OF RETURN Type: DEFINITIONS
Chapter 06 - Making Capital Investment Decisions 6-5 12. The pro forma income statement for a cost reduction project: Difficulty level: Easy Topic: PRO FORMA INCOME STATEMENT Type: CONCEPTS 13. One purpose of identifying all of the incremental cash flows related to a proposed project is to: A. isolate the total sunk costs so they can be evaluated to determine if the project will add value to the firm. B.eliminate any cost which has previously been incurred so that it can be omitted from the analysis of the project. C. make each project appear as profitable as possible for the firm. D. include both the proposed and the current operations of a firm in the analysis of the project. E. identify any and all changes in the cash flows of the firm for the past year so they can be included in the analysis. Difficulty level: Medium Topic: INCREMENTAL CASH FLOW Type: CONCEPTS 14. Which of the following are examples of an incremental cash flow? I. an increase in accounts receivable II. a decrease in net working capital III. an increase in taxes IV. a decrease in the cost of goods sold Difficulty level: Medium Topic: INCREMENTAL CASH FLOW Type: CONCEPTS
Chapter 06 - Making Capital Investment Decisions 6-6