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

A 5-year project requires an additional commitment of $100,000 in net working capital.What is the opportunity cost associated with this investment?

The present value of the total depreciation tax shield will be higher when an asset uses MACRS than when depreciated straight-line.

When is it appropriate to include sunk costs in the evaluation of a project?

Offer examples to confirm that firms do experience opportunity costs,even when cash payments are not explicitly made.

If a project is expected to increase inventory by $17,000,increase accounts payable by $10,000,and decrease accounts receivable by $1,000,what effect does working capital have during the life of the project?

If a project permits a reduction in the level of working capital,this reduction is assumed to increase cash flows.

Which of the following categories would be least likely to require annual adjustments in a capital budgeting analysis due to the effects of inflation?

How does net working capital affect the NPV of a 5-year project if working capital is expected to increase by $25,000 and the firm has a 15% cost of capital?

Assume your firm has an unused machine that originally cost $75,000,has a book value of $20,000,and is currently worth $25,000.Ignoring taxes,the correct opportunity cost for this machine in capital budgeting decisions is:

Calculate the NPV for the following capital budgeting proposal: $100,000 initial cost,to be depreciated straight-line over 5 years to an expected salvage value of $5,000,35% tax rate,$45,000 additional annual revenues,$15,000 additional annual expense,$8,000 additional investment in working capital,and 11% cost of capital.

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

Sunk costs do not affect project NPV.

Which of the following costs probably should not be allocated to the investment needed for a new project?

Allocations of overhead should not affect a project's incremental cash flows unless the:

New projects or products can have an indirect effect on the firm as well as a direct effect.Which of the following appears to be an indirect effect of launching a new product?

Projects that are calculated as having negative NPVs should be:

In project analysis,allocations of overhead should be limited to only those that represent additional expense.

When additional funds must be committed to working capital,those funds are assumed to be recovered at the end of the project's life.

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

Opportunity costs for organizational resources: