) Sunk costs are cash outflows that will occur regardless of the current accept/reject decision, and 6)
therefore should be excluded from the
... [Show More] analysis.
Answer: True False
2) Overhead costs are sometimes incremental cash flows and other times are considered sunk costs. 7)
Answer: True False
3) Interest payments on a loan obtained specifically to fund a new project should be considered an 8)
incremental cash flow for the new project when determining the accept/reject decision.
Answer: True False
4) To be included in a capital budgeting analysis, all incremental free cash flows must be expensed on 9)
the company's books, otherwise generally accepted accounting principles will be violated.
Answer: True False
5) In measuring cash flows we are interested only in the incremental or incremental after- tax cash
flows that are attributed to the investment proposal being evaluated.
Answer: True False
10)
15)
6) Sunk costs are: 16)
A) not deductible fortax purposes. B) notrelevant in capital budgeting.
C) recoverable. D) incremental.
Answer: B
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
7) In general, a project's free cash flows will fall in one of the following three categories: initial outlay,
differential cash flows over the project's life, and the terminal cash flow.
Answer: True False
17)
8) If an old asset is sold for less than its book value the resulting loss will save the company taxes,
hence lowering the cost of the project.
Answer: True False
18)
9) If an old asset is sold for its depreciated, or book, value, then no taxes result and there is no tax
effect from the sale.
Answer: True False
19)
10) One example of a terminal cash flow is the recapture of the net working capital associated with the
project.
Answer: True False
20)
11) The initial outlay of a project may be reduced by the after- tax salvage value of replaced equipment. 21)
Answer: True False [Show Less]