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.

Consider the following equally likely project outcomes:

 Consider the following equally likely project outcomes:

                                                     Profit

                                                                   X             Y

Pessimistic prediction                             $      0     $500

Expected outcome                                     $  500    $500

Optimistic prediction                              $1000    $500

A) Investors will prefer project X because it potentially offers a higher profit.

B) Investors will reject both projects because the profit is too low.

C) Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain.

D) Since Projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.

 Consider the timing of the profits of the following certain investment projects:

                                         Profit

                                 L                    S

Year 1                $       0            $ 3000

Year 2                $ 3000           $       0

A) Project S is preferred to Project L.

B) Project L is preferred to Project S.

C) Projects S and L are equally desirable.

D) A goal of profit maximization would favor Project S only.

In finance, we assume that investors are generally

A) neutral to risk.

B) averse to risk.

C) fond of risk.

D) none of the above.

Consider cash flows for Projects X and Y such as:

                                 Project X        Project Y

Year 1                        $3000             $      0

Year 2                        $      0              $3000

A rational person would prefer receiving cash flows sooner because

A) the money can be reinvested.

B) the money is nice to have around.

C) the investor may be tired of a particular investment.

D) the investor is indifferent to either proposal.