Exam 9: Using Discounted Cash Flow Analysis to Make Investment Decisions

Your forecast shows $500,000 annually in sales for each of the next three years.If your second and third year predictions have failed to incorporate 2.5% expected annual inflation,how far off in total dollars is your three-year forecast?

Why is it likely that firms would use straight-line depreciation methods for depicting project analysis to shareholders or lenders,if such choice were possible?

Higher depreciation rates:

Recaptured depreciation and terminal loss occur when:

Which of the following typically results from using straight-line depreciation in the set of books for shareholders?

Sunk costs remain the same whether or not you accept the project.

Which of the following is representative of how depreciation expense is handled in the face of inflation?

CumChan manufactures and sells 10 million bags to its international market at a cost of $20.00 each.It is about to introduce a new line of bags due to past success and forecast sales to be 12 million bags at a new price of $25 each.Sales on the old bags are anticipated to fall to 3 million.The old bags cost $6 each to manufacture,and the new ones will cost $8 each.What will be the cash flow used to evaluate the present value of the introduction of the new bag?

A five-year project requires an additional commitment of $100,000 in net working capital.What is the present value opportunity cost associated with this investment?

If a project's cash flows include those triggered outside the project's incremental cash flows,it is likely that the:

Which of the following changes in working capital is least likely,given an increase in the overall level of sales?

Your forecast shows $500,000 annually in sales for each of the next three years.If your second and third year predictions have failed to incorporate 5 percent expected annual inflation,how far off in total dollars is your three-year forecast?

How do changes in working capital affect project cash flows?

A new,more efficient machine will last four years and allow inventory levels to decrease by $100,000 during its life.At a cost of capital of 13 percent,how does the net working capital change affect the project's NPV?

The "recovery" of an additional investment in working capital is assumed to: