Capital budgeting techniques- cash flows

The following is NOT a principle to consider when calculating cash flows for NPV & IRR

• The final cash flows must be after-tax

• Include all opportunity costs

• Ignore allocated costs

• Include accounting entries e.g. depreciation

When calculating cash flows; _________ sunk costs.

Financing cash flows are included in the cash flow calculation when using the NPV & IRR methods.

• True

• False

You can use the incremental approach to calculate your cash flows when evaluating 3 different acquisition options

• True

• False

The formula for the profitability index (PI) is NPV/Initial cost

• True

• False

Depreciation is included as a cash flow

• True

• False

If an NPV calculation has given you cash flows and inflation rates; which discount rate would you use in your NPV calc

• real WACC

• nominal WACC

• required rate of return