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Fin 125 Ch. 10

Terms in this set (16)

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's:
incremental cash flows.
The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles?
Stand-alone principle
Kelley's Baskets makes handmade baskets and is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project?
Hiring additional employees to handle the increased workload should the firm accept the wreath project
Which one of the following costs was incurred in the past and cannot be recouped?
Sunk
The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following?
Opportunity cost
Which оne of the fоllоwing is an example оf a sunk cоst?
paying tо replace a broken pipe last week
GL Plastics spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?
Sunk
Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach?
Selling fewer hot dogs because hamburgers were added to the menu
Which one of the following should not be included in the analysis of a new product?
Money already spent for research and development of the new product
Which one of the following best describes the concept of erosion?
The cash flows of a new project that come at the expense of a firm's existing cash flows
Pro forma financial statements can best be described as financial statements:
showing projected values for future time periods.
Pro forma statements for a proposed project should generally do all of the following except:
include interest expense.
A project's cash flow is equal to the project's operating cash flow:
minus both the project's change in net working capital and capital spending.
Which one of the following is a project cash inflow? Ignore any tax effects.
Decrease in inventory
All of the following are related to a proposed project. Which one of these should be included in the cash flow at Time 0?
Initial investment in inventory to support the project
Which one of the following is a correct method for computing the operating cash flow of a project assuming that the interest expense is equal to zero?
Net income + Depreciation
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