Topic 4: Cash flow

Which one of the following costs was incurred in the past and cannot be recouped? 

•  Incremental

•  Erosion

•  Opportunity

•  Sunk

The stand-alone principle advocates that project analysis should be based solely on which one of the following costs? 

•  Sunk

• Total

•  Incremental

• Fixed

Which factor should not be considered in an investment decision

• Opportunity cost

• Sunk cost

• Expense

• Effect side

The operating cash flow for a project should exclude which one of the following? 

• Taxes

• Variable costs

• Fixed costs

• Interest expense

G & L Plastic Molders spent $1,500 last week repairing a machine. the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,500 should be treated as which type of cost? 

• Sunk

• Fixed

• Incremental

• Erosion

The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the project's:

• Internal cash flows.

• External cash flows

• Incremental cash flows

• Erosion effects

Which term relates to the cash flow which results from a firm's ongoing, normal business activities?

• Operating cash flow

• Cash flow from assets

• Capital spending

• Net working capital

The depreciation tax shield is best defined as the: 

• Amount of tax that is saved when an asset is purchased.

• Amount of tax that is due when an asset is sold.

• Amount of tax that is saved because of the depreciation expense.

• Amount by which the aftertax depreciation expense lowers net income

The X Co has $406,700 in earnings before interest and taxes, depreciation is $47,200 and the tax rate is 34%. Assume that this firm doesn’t have any interest expense. What is the OCF?

• $315,622

• $351,226

• $221,222

• $222,122

A firm has $500,000 in revenue, $125,000 costs, depreciation is $35,900, tax rate is 35%, interest expense is $11,100. What is the EBIT & OCF?

• EBIT = $375,000

  OCF = $260,200

• EBIT = $339,100

  OCF = $260,200

• EBIT = $339,100

  OCF = $262,000

• EBIT = $375,000

  OCF = $262,000