Question 1

_________ refers to the cash flow that a project is expected to generate after all operating expenses and taxes have been paid.

Accepted Answer

A)   Incremental cash flow from operations
B)   Operating income
C)   EBITDA
D)   None of the above.

Question 2

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

Accepted Answer

A)   average tax rate
B)   marginal tax rate
C)   lowest marginal tax rate
D)   None of the above.

Question 3

_____________ represent dollars stated in terms of constant purchasing power.

Accepted Answer

A)   Nominal dollars
B)   Real dollars
C)   Inflated dollars
D)   None of the above

Question 4

In order for a project to generate a positive net working capital cash flow at the end of its useful life,

Accepted Answer

A)   the project must have generated a cumulative negative cash flow during the life of the project.
B)   the project must have generated a cumulative positive cash flow during the life of the project.
C)   the project must have generated a cumulative negative cash flow at the conclusion of the project.
D)   the project could not have generated a positive cash flow at the opening of the project.

Question 5

General Mills just is undertaking an analysis on a new cereal. The firm realizes that if they come out with a new product it would affect sales of existing products? What is the best course of action for General Mills in this analysis?

Accepted Answer

A)   Treat the reduction of sales from existing cereals as a sunk cost.
B)   Account for the reduction of sales from existing cereals in the projection of cash flows on the new product.
C)   Include the allocated costs of the new cereal in the sales of the pre-existing products.
D)   Ignore the fact that sales of other products will be affected.

Question 6

The purchase of a factory building is an example of an incremental addition to working capital.

Accepted Answer

A) True 
 B)False

Question 7

Equivalent Annual Cost: Your firm is considering an investment that will cost $750,000 today. The investment will produce cash flows of $250,000 in year 1, $400,000 in year 2, and $600,000 in year 3. The discount rate that your firm uses for projects of this type is 11.75%. What is the investment's equivalent annual cost? (Round off to the nearest whole dollar)

Accepted Answer

A)   $163,613
B)   $225,008
C)   $68,888
D)   $92,845

Question 8

When deciding to select one project or another where the projects have different useful lives, then you could utilize:

Accepted Answer

A)   a repeated investment analysis to decide which project is better for the firm.
B)   an equivalent annual annuity analysis to decide which project is better for the firm.
C)   Either of the above.
D)   None of the above.

Question 9

A tax system in which taxpayers pay a progressively larger share of their income in taxes as their income rises is called:

Accepted Answer

A)   a flat tax system.
B)   a progressive tax system.
C)   a digressive tax system.
D)   a political tax system.

Question 10

The stand-alone principle says that we can treat a project as if it were a stand-alone firm that has its own revenue, expenses, and investment requirements.

Accepted Answer

A) True 
 B)False

Question 11

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as:

Accepted Answer

A)   the stand-alone principle.
B)   the dependent principle.
C)   the independent principle.
D)   None of the above.

Question 12

Free cash flow equals cash flow from operations minus required investments.

Accepted Answer

A) True 
 B)False

Question 13

Evaluate the following statement: You own a uranium mine, and the price of uranium is expected to increase at a rate of 3 percent per year. The cost of capital for your firm is 15 percent, and you are evaluating whether or not to begin harvesting the element. The correct choice is to begin harvesting immediately if the current NPV of the project is positive.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is true?

Accepted Answer

A)   The calculation of free cash flow does not include the impact of income taxes.
B)   Accounting earnings are an unreliable measure of the costs and benefits of a project.
C)   The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as the incremental principle.
D)   Depreciation expense should not be included in the calculation of incremental net operating profits after-tax.

Question 15

The impact of a project on a firm's overall value depends on

Accepted Answer

A)   a firm's accounting earnings.
B)   a firm's cash flow.
C)   a project's cash flow.
D)   None of the above.

Question 16

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted.

Accepted Answer

A)   Periodic
B)   ending cash flows
C)   Incremental
D)   None of the above.

Question 17

For a U.S. corporation with income above $20 million,

Accepted Answer

A)   the average tax rate is less than the marginal tax rate.
B)   the average tax rate is equal to the marginal tax rate.
C)   the average tax rate is greater than the marginal tax rate.
D)   None of the above.

Question 18

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is 8 percent, then what should nominal rate of return be? (Round final percentage answer to decimal places.)

Accepted Answer

A)   14.05%
B)   33.05%
C)   23.12%
D)   None of the above.

Question 19

Accounting earnings are a reliable measure of the costs and benefits of a project.

Accepted Answer

A) True 
 B)False

Question 20

Evaluate the following statement: The expected cash flows for a project are fixed amounts that have zero variability in the projected values.

Accepted Answer

A) True 
 B)False

Exam 11: Cash Flows and Capital Budgeting

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as:

Correct Answer
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Correct Answer
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_________ refers to the cash flow that a project is expected to generate after all operating expenses and taxes have been paid.

Correct Answer
verified

A tax system in which taxpayers pay a progressively larger share of their income in taxes as their income rises is called:

Correct Answer
verified

In order for a project to generate a positive net working capital cash flow at the end of its useful life,

Correct Answer
verified

Correct Answer
verified

Accounting earnings are a reliable measure of the costs and benefits of a project.

Correct Answer
verified

Free cash flow equals cash flow from operations minus required investments.

Correct Answer
verified

The purchase of a factory building is an example of an incremental addition to working capital.

Correct Answer
verified

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

The stand-alone principle says that we can treat a project as if it were a stand-alone firm that has its own revenue, expenses, and investment requirements.

Correct Answer
verified

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is 8 percent, then what should nominal rate of return be? (Round final percentage answer to decimal places.)

Correct Answer
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_____________ represent dollars stated in terms of constant purchasing power.

Correct Answer
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Evaluate the following statement: The expected cash flows for a project are fixed amounts that have zero variability in the projected values.

Correct Answer
verified

The impact of a project on a firm's overall value depends on

Correct Answer
verified

When deciding to select one project or another where the projects have different useful lives, then you could utilize:

Correct Answer
verified

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted.

Correct Answer
verified

General Mills just is undertaking an analysis on a new cereal. The firm realizes that if they come out with a new product it would affect sales of existing products? What is the best course of action for General Mills in this analysis?

Correct Answer
verified

For a U.S. corporation with income above $20 million,

Correct Answer
verified

Exam 11: Cash Flows and Capital Budgeting

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

_________ refers to the cash flow that a project is expected to generate after all operating expenses and taxes have been paid.

Correct AnswerverifiedShow Answer

A tax system in which taxpayers pay a progressively larger share of their income in taxes as their income rises is called:

Correct AnswerverifiedShow Answer

In order for a project to generate a positive net working capital cash flow at the end of its useful life,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Accounting earnings are a reliable measure of the costs and benefits of a project.

Correct AnswerverifiedShow Answer

Free cash flow equals cash flow from operations minus required investments.

Correct AnswerverifiedShow Answer

The purchase of a factory building is an example of an incremental addition to working capital.

Correct AnswerverifiedShow Answer

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The stand-alone principle says that we can treat a project as if it were a stand-alone firm that has its own revenue, expenses, and investment requirements.

Correct AnswerverifiedShow Answer

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is 8 percent, then what should nominal rate of return be? (Round final percentage answer to decimal places.)

Correct AnswerverifiedShow Answer

_____________ represent dollars stated in terms of constant purchasing power.

Correct AnswerverifiedShow Answer

Evaluate the following statement: The expected cash flows for a project are fixed amounts that have zero variability in the projected values.

Correct AnswerverifiedShow Answer

The impact of a project on a firm's overall value depends on

Correct AnswerverifiedShow Answer

When deciding to select one project or another where the projects have different useful lives, then you could utilize:

Correct AnswerverifiedShow Answer

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted.

Correct AnswerverifiedShow Answer

General Mills just is undertaking an analysis on a new cereal. The firm realizes that if they come out with a new product it would affect sales of existing products? What is the best course of action for General Mills in this analysis?

Correct AnswerverifiedShow Answer

For a U.S. corporation with income above $20 million,

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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