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

A project requires an additional commitment of $100,000 in net working capital in each of years 1 to 4.These extra investments can be recovered in year 5 when the project comes to an end.What is the effect on NPV?

If the adoption of a new product will reduce the sales of an existing product,then the project cash flows should:

A project that increased sales was accompanied by a $50,000 increase in inventory,a $20,000 increase in accounts receivable,and a $25,000 increase in accounts payable.Assuming these amounts remain constant,by how much has net working capital increased?

What is the amount of the annual depreciation tax shield for a firm with $200,000 in net income,$75,000 in depreciation expense,and a 35% marginal tax rate?

Which one of the following statements regarding depreciation is correct?

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

The opportunity cost of an asset:

What rate of nominal growth is expected in sales if they are currently $1,000,000 and are expected to reach $1,600,000 in 5 years? Assume an inflation rate of 3.5%.

In what manner does depreciation expense affect investment projects?

Changes in net working capital can occur at:

As a project comes to its end,there is a disinvestment in working capital,which also generates positive cash flow as inventories are sold off and accounts receivable are collected.

A firm invests $10 million in a new stamping machine.It depreciates it straight line for tax purposes over 5 years.The tax rate is 30%,inflation is 4% a year,and the discount rate is 8%.What is the PV of the depreciation tax shield?

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

Which one of the following methods will provide a correct analysis for capital budgeting purposes?

Given a positive discount rate,which one of the following changes would increase the NPV of a project?

Capital budgeting projects typically assume that all cash flows transpire at the end of the year.The reason for this is that:

A project costs $12,800 and is expected to provide a real cash inflow of $10,000 at the end of each of years 1 through 5.Calculate the net present value of this project if inflation is expected to be 4% in each year and the firm employs a nominal discount rate of 10.76%.

The rationale for not including sunk costs in capital budgeting decisions is that they:

What is the annual depreciation tax shield for a profitable firm in the 30% marginal tax bracket with $100,000 of annual depreciation expense?

Projects that have negative NPVs should be: