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1、CHAPTER 10Making Capital Investment DecisionsI.DEFINITIONSINCREMENTAL CASH FLOWSa1.The changes in a firms future cash flows that are a direct consequence of accepting a project are called _ cash flows.a.incrementalb.stand-alonec.after- present valuee.erosionSTAND-ALONE PRINCIPLEb2.The evaluation of
2、a project based solely on its incremental cash flows is the basis of the:a.incremental cash flow method.b.stand-alone principle.c.dividend growth model.d.after-tax salvage value analysis.e.discounted payback method.SUNK COSTSc3.A cost that has already been paid, or the liability to pay has already b
3、een incurred, is a(n):a.salvage value working capital expense.c.sunk cost.d.opportunity cost.e.erosion cost.OPPORTUNITY COSTSd4.The most valuable investment given up if an alternative investment is chosen is a(n):a.salvage value working capital expense.c.sunk cost.d.opportunity cost.e.erosion cost
4、.EROSION COSTSe5.The cash flows of a new project that come at the expense of a firms existing projects are called:a.salvage value working capital expenses.c.sunk costs.d.opportunity costs.e.erosion costs.PRO FORMA FINANCIAL STATEMENTSa6.A pro forma financial statement is one that:a.projects future
5、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 years financial statement.e.reflects the past and current operations of the firm.MACRS DEPRECIATIONb7.The depreciatio
6、n method currently allowed under US tax law governing the accelerated write-off of property under various lifetime classifications is called _ depreciation.a.FIFOb.MACRSc.straight-lined.sum-of-years digitse.curvilinearDEPRECIATION TAX SHIELDc8.The cash flow tax savings generated as a result of a fir
7、ms 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.CASH FLOW FROM PROJECTSd9.The cash flow from projects for a company is computed as the: operating cash flow generated by
8、 the project, less any sunk costs and erosion costs.b.sum of the incremental operating cash flow and after-tax salvage value of the 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
9、incurred by the project.e.sum of the sunk costs, opportunity costs, and erosion costs of the project.EQUIVALENT ANNUAL COSTe10.The annual annuity stream of payments with the same present value as a projects costs is called the projects _ cost.a.incrementalb.sunkc.opportunityd.erosione.equivalent ann
10、ualII.CONCEPTSINCREMENTAL CASH FLOWb11.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 incurr
11、ed 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 ye
12、ar so they can be included in the analysis.INCREMENTAL CASH FLOWe12.Which of the following are examples of an incremental cash flow?I.an increase in accounts receivableII.a decrease in net working capitalIII.an increase in taxesIV.a decrease in the cost of goods solda.I and III onlyb.III and IV only
13、c.I and IV onlyd.I, III, and IV onlye.I, II, III, and IVINCREMENTAL CASH FLOWc13.Which one of the following is an example of an incremental cash flow?a.the annual salary of the company president which is a contractual obligationb.the rent on a warehouse which is currently being utilizedc.the rent on
14、 some new machinery that is required for an upcoming projectd.the property taxes on the currently owned warehouse which has been sitting idle but is going to be utilized for a new projecte.the insurance on a company-owned building which will be utilized for a new projectSTAND-ALONE PRINCIPLEd14.The stand-alone principle advocates project analysis which is focused on _ costs.a.sunkb.totalc.variabled.incrementale.fixedSUNK COSTc15.Sunk costs include any cost that:a.will change if a project is undertaken.b.will be incurred if a project is accepted
