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Making Capital Investment Decisions Questions

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Making Capital Investment Decisions Questions

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CHAPTER 7
Making Capital Investment Decisions
Multiple Choice Questions:

I.DEFINITIONS

INCREMENTAL CASH FLOWS
a1.The changes in a firm’s future cash flows that are a direct consequence of accepting a project are called _____ cash flows. a.incremental
b.stand-alone
c.after-tax
d.net present value
e.erosion

Difficulty level: Easy

EQUIVALENT ANNUAL COST
e2.The annual annuity stream of payments with the same present value as a project’s costs is called the project’s _____ cost. a.incremental
b.sunk
c.opportunity
d.erosion
e.equivalent annual

Difficulty level: Easy

SUNK COSTS
c3.A cost that has already been paid, or the liability to pay has already been incurred, is a(n): a.salvage value expense.
b.net working capital expense.
c.sunk cost.
d.opportunity cost.
e.erosion cost.

Difficulty level: Easy

OPPORTUNITY COSTS
d4.The most valuable investment given up if an alternative investment is chosen is a(n): a.salvage value expense.
b.net working capital expense.
c.sunk cost.
d.opportunity cost.
e.erosion cost.

Difficulty level: Easy

EROSION COSTS
e5.The cash flows of a new project that come at the expense of a firm’s existing projects are called: a.salvage value expenses.
b.net working capital expenses.
c.sunk costs.
d.opportunity costs.
e.erosion costs.

Difficulty level: Easy

PRO FORMA FINANCIAL STATEMENTS
a6.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 year’s financial statement. e....

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