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1、精品文档，仅供学习与交流，如有侵权请联系网站删除CHAPTER 8Making Capital Investment DecisionsI.DEFINITIONSINCREMENTAL CASH FLOWSa1.The changes in a firms future cash flows that are a direct consequence of accepting a project are called _ cash flows.a.incrementalb.stand-alonec.after- present valuee.erosionDifficulty level: E
2、asyEQUIVALENT ANNUAL COSTe2.The annual annuity stream of payments with the same present value as a projects costs is called the projects _ cost.a.incrementalb.sunkc.opportunityd.erosione.equivalent annualDifficulty level: EasySUNK COSTSc3.A cost that has already been paid, or the liability to pay ha
3、s already been incurred, is a(n):a.salvage value working capital expense.c.sunk cost.d.opportunity cost.e.erosion cost.Difficulty level: EasyOPPORTUNITY COSTSd4.The most valuable investment given up if an alternative investment is chosen is a(n):a.salvage value working capital expense.c.sunk cost.
4、d.opportunity cost.e.erosion cost.Difficulty level: EasyEROSION COSTSe5.The cash flows of a new project that come at the expense of a firms existing projects are called:a.salvage value working capital expenses.c.sunk costs.d.opportunity costs.e.erosion costs.Difficulty level: EasyPRO FORMA FINANCIA
5、L STATEMENTSa6.A pro forma financial statement is one that:a.projects future years operations.b.is expressed as a percentage of the total assets of the firm.c.is expressed as a percentage of the total sales of the firm.d.is expressed relative to a chosen base years financial statement.e.reflects the
6、 past and current operations of the firm.Difficulty level: EasyMACRS DEPRECIATIONb7.The depreciation method currently allowed under US tax law governing the accelerated write-off of property under various lifetime classifications is called _ depreciation.a.FIFOb.MACRSc.straight-lined.sum-of-years di
7、gitse.curvilinearDifficulty level: EasyDEPRECIATION TAX SHIELDc8.The cash flow tax savings generated as a result of a firms tax-deductible depreciation expense is called the:a.after-tax depreciation savings.b.depreciable basis.c.depreciation tax shield.d.operating cash flow.e.after-tax salvage value
8、.Difficulty level: EasyCASH FLOWd9.The cash flow from projects for a company is computed as the: operating cash flow generated by the project, less any sunk costs and erosion costs.b.sum of the incremental operating cash flow and after-tax salvage value of the income generated by the project, plus
9、the annual depreciation expense.d.sum of the incremental operating cash flow, capital spending, and net working capital expenses incurred by the project.e.sum of the sunk costs, opportunity costs, and erosion costs of the project.Difficulty level: MediumII.CONCEPTSPRO FORMA INCOME STATEMENTb10.The p
10、ro forma income statement for a cost reduction project:a.will reflect a reduction in the sales of the firm.b.will generally reflect no incremental sales.c.has to be prepared reflecting the total sales and expenses of a firm.d.cannot be prepared due to the lack of any project related sales.e.will alw
11、ays reflect a negative project operating cash flow.Difficulty level: EasyINCREMENTAL CASH FLOWb11.One purpose of identifying all of the incremental cash flows related to a proposed project is to:a.isolate the total sunk costs so they can be evaluated to determine if the project will add value to the
12、 firm.b.eliminate any cost which has previously been incurred so that it can be omitted from the analysis of the project.c.make each project appear as profitable as possible for the firm.d.include both the proposed and the current operations of a firm in the analysis of the project.e.identify any an
13、d all changes in the cash flows of the firm for the past year so they can be included in the analysis.Difficulty level: MediumINCREMENTAL CASH FLOWe12.Which of the following are examples of an incremental cash flow?I.an increase in accounts receivableII.a decrease in net working capitalIII.an increa
14、se in taxesIV.a decrease in the cost of goods solda.I and III onlyb.III and IV onlyc.I and IV onlyd.I, III, and IV onlye.I, II, III, and IVDifficulty level: MediumINCREMENTAL CASH FLOWc13.Which one of the following is an example of an incremental cash flow?a.the annual salary of the company presiden
15、t which is a contractual obligationb.the rent on a warehouse which is currently being utilizedc.the rent on some new machinery that is required for an upcoming projectd.the property taxes on the currently owned warehouse which has been sitting idle but is going to be utilized for a new projecte.the
16、insurance on a company-owned building which will be utilized for a new projectDifficulty level: MediumINCREMENTAL COSTSd14.Project analysis is focused on _ costs.a.sunkb.totalc.variabled.incrementale.fixedDifficulty level: MediumSUNK COSTc15.Sunk costs include any cost that:a.will change if a projec
17、t is undertaken.b.will be incurred if a project is accepted.c.has previously been incurred and cannot be changed.d.is paid to a third party and cannot be refunded for any reason whatsoever.e.will occur if a project is accepted and once incurred, cannot be recouped.Difficulty level: EasySUNK COSTd16.
18、You spent $500 last week fixing the transmission in your car. Now, the brakes are acting up and you are trying to decide whether to fix them or trade the car in for a newer model. In analyzing the brake situation, the $500 you spent fixing the transmission is a(n) _ cost.a.opportunityb.fixedc.increm
19、entald.sunke.relevantDifficulty level: EasyEROSIONb17.Erosion can be explained as the:a.additional income generated from the sales of a newly added product.b.loss of current sales due to a new project being implemented.c.loss of revenue due to employee theft.d.loss of revenue due to customer theft.e
20、.loss of cash due to the expenses required to fix a parking lot after a heavy rain storm.Difficulty level: EasyEROSIONa18.Which of the following are examples of erosion?I.the loss of sales due to increased competition in the product marketII.the loss of sales because your chief competitor just opene
21、d a store across the street from your storeIII.the loss of sales due to a new product which you recently introducedIV.the loss of sales due to a new product recently introduced by your competitora.III onlyb.III and IV onlyc.I, III and IV onlyd.II and IV onlye.I, II, III, and IVDifficulty level: Medi
22、umTYPES OF COSTSd19.Which of the following should be included in the analysis of a project?I.sunk costsII.opportunity costsIII.erosion costsIV.incremental costsa.I and II onlyb.III and IV onlyc.II and IV onlyd.II, III, and IV onlye.I, II, and IV onlyDifficulty level: MediumNET WORKING CAPITALd20.All
23、 of the following are anticipated effects of a proposed project. Which of these should be included in the initial project cash flow related to net working capital?I.an inventory decrease of $5,000II.an increase in accounts receivable of $1,500III.an increase in fixed assets of $7,600IV.a decrease in
24、 accounts payable of $2,100a.I and II onlyb.I and III onlyc.II and IV onlyd.I, II, and IV onlye.I, II, III, and IVDifficulty level: MediumNET WORKING CAPITALa21.Changes in the net working capital:a.can affect the cash flows of a project every year of the projects life.b.only affect the initial cash
25、flows of a project.c.are included in project analysis only if they represent cash outflows.d.are generally excluded from project analysis due to their irrelevance to the total project.e.affect the initial and the final cash flows of a project but not the cash flows of the middle years.Difficulty lev
26、el: MediumNET WORKING CAPITALc22.Which one of the following will decrease net working capital of a firm?a.a decrease in accounts payableb.an increase in inventoryc.a decrease in accounts receivabled.an increase in the firms checking account balancee.a decrease in fixed assetsDifficulty level: EasyNE
27、T WORKING CAPITALd23.Net working capital:a.can be ignored in project analysis because any expenditure is normally recouped by the end of the project.b.requirements generally, but not always, create a cash inflow at the beginning of a project.c.expenditures commonly occur at the end of a project.d.is
28、 frequently affected by the additional sales generated by a new project.e.is the only expenditure where at least a partial recovery can be made at the end of a project.Difficulty level: EasyMACRSd24.A company which uses the MACRS system of depreciation:a.will have equal depreciation costs each year
29、of an assets life.b.will expense the cost of nonresidential real estate over a period of 7 years.c.can depreciate the cost of land, if they so desire.d.will write off the entire cost of an asset over the assets class life.e.cannot expense any of the cost of a new asset during the first year of the a
30、ssets life.Difficulty level: EasyMACRSa25.Bet r Bilt Toys just purchased some MACRS 5-year property at a cost of $230,000. Which of the following will correctly give you the book value of this equipment at the end of year 2?MACRS 5-year propertyYearRate 120.00% 232.00% 319.20% 411.52% 511.52% 6 5.76
31、%I.52% of the asset costII.48% of the asset costIII.68% of 80% of the asset costIV.the asset cost, minus 20% of the asset cost, minus 32% of 80% of the asset costa.II onlyb.III and IV onlyc.I and III onlyd.II and IV onlye.I, II, III, and IVDifficulty level: EasyMACRSe26.Will Do, Inc. just purchased
32、some equipment at a cost of $650,000. What is the proper methodology for computing the depreciation expense for year 3 if the equipment is classified as 5-year property for MACRS?MACRS 5-year propertyYearRate 120.00% 232.00% 319.20% 411.52% 511.52% 6 5.76%a.$650,000 (1-.20) (1-.32) (1-.192)b.$650,00
33、0 (1-.20) (1-.32)c.$650,000 (1+.20) (1+.32) (1+.192)d.$650,000 (1-.192)e.$650,000 .192Difficulty level: MediumBOOK VALUEd27.The book value of an asset is primarily used to compute the:a.annual depreciation tax shield.b.amount of cash received from the sale of an asset.c.amount of tax saved annually
34、due to the depreciation expense.d.amount of tax due on the sale of an asset.e.change in depreciation needed to reflect the market value of the asset.Difficulty level: EasySALVAGE VALUEc28.The salvage value of an asset creates an after-tax cash inflow to the firm in an amount equal to the:a.sales pri
35、ce of the asset.b.sales price minus the book value.c.sales price minus the tax due based on the sales price minus the book value.d.sales price plus the tax due based on the sales price minus the book value.e.sales price plus the tax due based on the book value minus the sales price.Difficulty level:
36、 EasySALVAGE VALUEe29.The pre-tax salvage value of an asset is equal to the:a.book value if straight-line depreciation is used.b.book value if MACRS depreciation is used.c.market value minus the book value.d.book value minus the market value.e.market value.Difficulty level: EasyPROJECT OCFa30.A proj
37、ects operating cash flow will increase when:a.the depreciation expense increases.b.the sales projections are lowered.c.the interest expense is lowered.d.the net working capital requirement increases.e.the earnings before interest and taxes decreases.Difficulty level: EasyPROJECT CASH FLOWSc31.The ca
38、sh flows of a project should:a.be computed on a pre-tax basis.b.include all sunk costs and opportunity costs.c.include all incremental costs, including opportunity costs.d.be applied to the year when the related expense or income is recognized by GAAP.e.include all financing costs related to new deb
39、t acquired to finance the project.Difficulty level: EasyPROJECT OCFa32.Which of the following are correct methods for computing the operating cash flow of a project assuming that the interest expense is equal to zero?I.EBIT + Depreciation - TaxesII.EBIT + Depreciation + TaxesIII.Net Income + Depreci
40、ationIV.(Sales Costs) (Taxes + Depreciation) (1-Taxes)a.I and III onlyb.II and IV onlyc. II and III onlyd.I, III, and IV onlye.II, III, and IV onlyDifficulty level: MediumBOTTOM-UP OCFb33.The bottom-up approach to computing the operating cash flow applies only when:a.both the depreciation expense an
41、d the interest expense are equal to zero.b.the interest expense is equal to zero.c.the project is a cost-cutting project.d.no fixed assets are required for the project.e.taxes are ignored and the interest expense is equal to zero.Difficulty level: MediumTOP-DOWN OCFa34.The top-down approach to compu
42、ting the operating cash flow:a.ignores all noncash items.b.applies only if a project produces sales.c.can only be used if the entire cash flows of a firm are included.d.is equal to sales - costs - taxes + depreciation.e.includes the interest expense related to a project.Difficulty level: MediumTAX S
43、HIELDd35. An increase in which one of the following will increase the operating cash flow?a.employee salariesb.office rentc.building maintenanced.equipment depreciatione.equipment rentalDifficulty level: EasyTAX SHIELDc36.Tax shield refers to a reduction in taxes created by:a.a reduction in sales.b.
44、an increase in interest expense.c.noncash expenses.d.a projects incremental expenses.e.opportunity costs.Difficulty level: EasyCOST-CUTTINGc37.A project which is designed to improve the manufacturing efficiency of a firm but will generate no additional sales is referred to as a(n) _ project.a.sunk costb.opportunityc.cost-cuttingd.revenue-cuttinge.revenue-generatingDifficulty level: EasyEQUIVALENT ANNUAL COSTc38.Tonis Tools is comparing machines to determine which one to purchase. The machines sell for di