FIN537 week 9-1 class activity

In the context of capital budgeting, what is an opportunity cost?

• The cost of acquiring new assets.

• The cost associated with financing a project through debt.

• Benefits that are foregone by choosing one investment over another.

• The total expenses incurred in the implementation of a project.

A machine for RM50,000, with useful life of 10 years. The depreciation cost based on straight line approach is:

• 5500

• 5000

• 4500

• 4000

Which of the following is relevant cash flow to be included in capital budgeting?

• sunk cost

• financing cost

• net working capital

• before tax disposal value of asset

Project cash flow consists of three components from the following, EXCEPT:

• operating cash flow

• changes in net working capital

• before tax cash flow

• capital spending

Given Sales RM50,000, Variable costs RM12,000; Total Fixed costs RM17,000; Depreciation RM3,000, Tax 30%. The Operating Cash Flow will be: _______

• RM15,600

• RM15,000

• RM14,000

• RM14,650

A project needs RM10,000 investment in NWC. What happens to the net working capital at the end of the project?

• It is written off as an expense.

• It is recovered and added back to the final cash flows.

• It remains as an ongoing investment.

• It is amortized over the life of the project.

At the start of a project, a company has RM70,000 in cash and RM40,000 in trade payables. The initial NWC will be:

• 70,000

• 30,000

• 110,000

• 40,000

Which of the following is the correct way to compute OCF using tax shield approach?

• (Sales-VC-FC- Depreciation) + (Tax x Depreciation)

• (Sales-VC-FC) x

  (1-Tax) + (Depreciation x Tax)

• (Sales - VC) (1- Tax) - FC - Depreciation

• (Sales - VC- FC - Depreciation) x (1-tax)

Which of the following is correct about net working capital treatment in capital budgeting?

• an increase in net working capital is a cash outflow

• a decrease in net working capital is a cash outflow

• initial net working capital will be written off at the end of the project

• net working capital changes is irrelevant cash flows in capital budgeting

Which statement correctly presents the bottom-up approach to calculating operating cash flow?

• Sales - Operating Expenses -Tax

• Net income + Depreciation

• (Sales - Operating Expenses) x (1-Tax) + (Tax x Depreciation)

• Sales - Operating Expenses - Depreciation - Tax