The calculation of differential cash flows over a project's life should include which of the following?

The calculation of differential cash flows over a project's life should include which of the following?

A) Labor and material savings

B) Additional revenues attributable to the project

C) Investment in net working capital

D) All of the above

Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal?

A) Increase in accounts receivable

B) The cost of shipping new equipment

C) The cost of issuing new bonds if the project is financed by a new bond issue

D) The cost of installing new equipment

Which of the following expenses should be included when estimating cash flows for investment projects?

A) Interest expense related to financing a project

B) Sunk costs

C) Required principal payments related to financing a project

D) Opportunity costs

When evaluating Capital Budgeting decisions, which of the following items should NOT be included in the construction of cash flow projections for purposes of analysis?

A) Net salvage value

B) Changes in net working capital requirements

C) Shipping and installation costs

D) All of the above should be included.

Holding all other variables constant, which of the following would INCREASE net working capital for given year on a project?

A) Allowing customers less time to pay for purchases

B) Taking longer to pay suppliers

C) Increasing inventory levels

D) Both A and C

If an investment project would make use of land which the firm currently owns, the project should be charged with

A) a sunk cost.

B) an opportunity cost.

C) amortization.

D) interest.

A machine has a cost of $5,575,000. It will produce cash inflows of $1,825,000 (Year 1); $1,775,000

A machine has a cost of $5,575,000. It will produce cash inflows of $1,825,000 (Year 1); $1,775,000 (Year 2); $1,630,000 (Year 3); $1,585,000 (Year 4); and $1,650,000 (Year 5). At a   of 16.25%, the project should be

A) accepted.

B) rejected.

C) discounted at a lower rate.

D) abandoned after the first year.

Which of the following is the correct equation to solve for the NPV of the project that has an initial outlay of $30,000, followed by three years of $20,000 in incremental cash inflow? Assume a discount rate of 10%.

A) NPV = -30,000 + (3 × 20,000)/(1.10)3

B) NPV = -$30,000 + $20,000/(1.10)1 + $20,000/(1.10)2 + $20,000/(1.10)3 

C) NPV = -$30,000 + $20,000/(1.01).10 + $20,000/(1.02).10 + $20,000/(1.03).10 

D) NPV = -$30,000 + $20,000/(1.1).10 + $20,000(1.2).10 + $20,000(1.3).10

Project Full Moon has an initial outlay of $30,000, followed by positive cash flows of $10,000 in year 1, $15,000 in year 2, and $15,000 in year 3. The project should be accepted if the required rate of return is

A) greater than 0.

B) less than 14.6%.

C) less than 16.25%.

D) greater than 12%.

Which of the following is a correct EXCEL formula to solve for the net present value of a project.

A) =NPV (k,CF1, CF2,...CFn)+CF0

B) =NPV (k,CF0,CF1, CF2,...CFn)

C) =NPV (CF0,CF1, CF2,...CFn)

D) =NPV (CF1, CF2,...CFn)+CF0

WSU Inc. has various options for replacing a piece of manufacturing equipment. The present value of costs for option Ell is $84,000. Option Ell has a useful life of 5 years; annual operating costs were discounted at 9%. What is the equivalent annual cost?

A) $16,800

B) $21,595.77

C) $14,035.77

D) $18,312

The equivalent annual cost (EAC) method is appropriate for evaluating accessibility projects mandated by the Americans With Disabilities Act.

Answer:  TRUE

The required rate of return represents the cost of capital for a project.

Answer:  TRUE

The higher the discount rate, the greater the importance of the early cash flows.

Answer:  TRUE

The equivalent annual cost (EAC) method is helpful for mutually exclusive projects with unequal economic lives.

Answer:  TRUE