Cash Flows and Project Evaluation

Incremental cash flows refer to:

• Cash flows that are generated by existing projects

• Cash flows that are generated by new investment projects

• Cash flows that are unrelated to the company's operations

• Cash flows that are reinvested into the company

Which of the following is an example of an incremental cash inflow?

• Payment of accounts payable

• Purchase of new equipment

• Payment of interest on a loan

• Increase in sales revenue

When evaluating incremental cash flows, which of the following is generally ignored?

• Sunk costs

• Opportunity costs

• Variable costs

• Fixed costs

________ cash flows are the changes in a firm's future cash flows that are a direct result of accepting a project.

• Incremental

• Stand-alone

• Opportunity

• Equivalent annual

• Erosion

A decrease in a firm's current cash flows resulting from the implementation of a new project is referred to as:

• Salvage value expenses

• Net working capital expenses

• Sunk costs

• Opportunity costs

• Erosion costs

When a project's ________, its operating cash flow will increase.

• Depreciation expense increases

• Sales projections are lowered

• Net working capital requirement increases

• Earnings before interest and taxes decreases

Assume a firm has no interest expense or extraordinary items. Given this, the operating cash flow can be computed as:

• EBIT − Taxes

• EBIT(1 − Tax rate) + Depreciation*(Tax rate)

• (Sales − Costs)(1 − Tax rate)

• EBIT − Depreciation + Taxes

• Net income + Depreciation

A(n) ________ is the most valuable investment forgone if an alternative investment is chosen.

• salvage value expense

• net working capital expense

• sunk cost

• opportunity cost

Total cashflow

• cashflows from capital investments + operating cashflows + cashflows from changes in NWC

• cashflows from capital investments + operating cashflows + cashflows from changes in NWC + depreciation

• cashflows from capital investments + operating cashflows - cashflows from changes in NWC

• operating cashflows - cashflows from changes in NWC