Scribd Logo
Upload

Welcome to Scribd!

  • 390 views

    Cash Flow Estimation and Risk Analysis: Multiple Choice: Conceptual

    Uploaded by

    Kristel Sumabat
    This document discusses relevant cash flows and risk analysis when evaluating corporate projects. It provides 7 multiple choice questions about key concepts: 1) Statements a and c are correct - depreciation affects operating cash flows and opportunity costs should be accounted for in investment decisions. 2) Statement c is correct - opportunity costs associated with a project should be included when estimating relevant cash flows. 3) Statement d is correct - opportunity costs and externalities incurred from a project should be incorporated into estimated cash flows. So in summary, this passage emphasizes that when evaluating projects, companies should account for how depreciation impacts cash flows, consider opportunity costs of investment decisions, and include opportunity costs and externalities in

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Cash Flow Estimation and Risk Analysis: Multiple Choice: Conceptual

    Uploaded by

    Kristel Sumabat
    390 views2 pages
    This document discusses relevant cash flows and risk analysis when evaluating corporate projects. It provides 7 multiple choice questions about key concepts: 1) Statements a and c are correct - depreciation affects operating cash flows and opportunity costs should be accounted for in investment decisions. 2) Statement c is correct - opportunity costs associated with a project should be included when estimating relevant cash flows. 3) Statement d is correct - opportunity costs and externalities incurred from a project should be incorporated into estimated cash flows. So in summary, this passage emphasizes that when evaluating projects, companies should account for how depreciation impacts cash flows, consider opportunity costs of investment decisions, and include opportunity costs and externalities in

    Original Title

    TB_Chapter11-Cash-Flow-Estimation-and-Risk-Analysis

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses relevant cash flows and risk analysis when evaluating corporate projects. It provides 7 multiple choice questions about key concepts: 1) Statements a and c are correct - depreciation affects operating cash flows and opportunity costs should be accounted for in investment decisions. 2) Statement c is correct - opportunity costs associated with a project should be included when estimating relevant cash flows. 3) Statement d is correct - opportunity costs and externalities incurred from a project should be incorporated into estimated cash flows. So in summary, this passage emphasizes that when evaluating projects, companies should account for how depreciation impacts cash flows, consider opportunity costs of investment decisions, and include opportunity costs and externalities in

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    390 views2 pages

    Cash Flow Estimation and Risk Analysis: Multiple Choice: Conceptual

    Uploaded by

    Kristel Sumabat
    This document discusses relevant cash flows and risk analysis when evaluating corporate projects. It provides 7 multiple choice questions about key concepts: 1) Statements a and c are correct - depreciation affects operating cash flows and opportunity costs should be accounted for in investment decisions. 2) Statement c is correct - opportunity costs associated with a project should be included when estimating relevant cash flows. 3) Statement d is correct - opportunity costs and externalities incurred from a project should be incorporated into estimated cash flows. So in summary, this passage emphasizes that when evaluating projects, companies should account for how depreciation impacts cash flows, consider opportunity costs of investment decisions, and include opportunity costs and externalities in

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    CHAPTER 11

    CASH FLOW ESTIMATION AND RISK ANALYSIS


    (Difficulty: E = Easy, M = Medium, and T = Tough)

    Multiple Choice: Conceptual

    Easy:
    Relevant cash flows Answer: d Diff: E
    1. Which of the following statements is most correct?

    a. The rate of depreciation will often affect operating cash flows, even
    though depreciation is not a cash expense.
    b. Corporations should fully account for sunk costs when making
    investment decisions.
    c. Corporations should fully account for opportunity costs when making
    investment decisions.
    d. Statements a and c are correct.
    e. All of the statements above are correct.

    Relevant cash flows Answer: c Diff: E


    2. A company is considering a new project. The company’s CFO plans to
    calculate the project’s NPV by discounting the relevant cash flows
    (which include the initial up-front costs, the operating cash flows, and
    the terminal cash flows) at the company’s cost of capital (WACC). Which
    of the following factors should the CFO include when estimating the
    relevant cash flows?

    a. Any sunk costs associated with the project.


    b. Any interest expenses associated with the project.
    c. Any opportunity costs associated with the project.
    d. Statements b and c are correct.
    e. All of the statements above are correct.

    Relevant cash flows Answer: d Diff: E


    3. When evaluating potential projects, which of the following factors
    should be incorporated as part of a project’s estimated cash flows?

    a. Any sunk costs that were incurred in the past prior to considering
    the proposed project.
    b. Any opportunity costs that are incurred if the project is undertaken.
    c. Any externalities (both positive and negative) that are incurred if
    the project is undertaken.
    d. Statements b and c are correct.
    e. All of the statements above are correct.

    Chapter 11 - Page 1
    Relevant cash flows Answer: b Diff: E
    4. Which of the following statements is most correct?

    a. When evaluating corporate projects it is important to include all


    sunk costs in the estimated cash flows.
    b. When evaluating corporate projects it is important to include all
    relevant externalities in the estimated cash flows.
    c. Interest expenses should be included in project cash flows.
    d. Statements a and b are correct.
    e. All of the statements above are correct.

    Relevant cash flows Answer: c Diff: E


    5. Which of the following is not a cash flow that results from the decision
    to accept a project?

    a. Changes in net operating working capital.


    b. Shipping and installation costs.
    c. Sunk costs.
    d. Opportunity costs.
    e. Externalities.

    Relevant cash flows Answer: b Diff: E N


    6. When evaluating a new project, the firm should consider all of the
    following factors except:

    a. Changes in net operating working capital attributable to the project.


    b. Previous expenditures associated with a market test to determine the
    feasibility of the project, if the expenditures have been expensed
    for tax purposes.
    c. Current rental income of a building owned by the firm if it is not
    used for this project.
    d. The decline in sales of an existing product directly attributable to
    this project.
    e. All of the statements above should be considered.

    Relevant cash flows Answer: d Diff: E N


    7. Which of the following items should Bev’s Beverage Inc. take into
    account when evaluating a proposed prune juice project?

    a. The company spent $300,000 two years ago to renovate its Cincinnati
    plant. These renovations were made in anticipation of another project
    that the company ultimately did not undertake.
    b. If the company did not proceed with the prune juice project, the
    Cincinnati plant could generate leasing income of $75,000 a year.
    c. If the company proceeds with the prune juice project, it is estimated
    that sales of the company’s apple juice will fall by 3 percent a
    year.
    d. Statements b and c are correct.
    e. All of the statements above are correct.

    Chapter 11 - Page 2

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy