Finance II - Cash Flow analysis

What is the basis for capital budgeting decisions?

• Net income

• Cash flows

• Gross profit

• Depreciation

Why are financing costs not included in capital budgeting cash flows?

• They are not significant.

• They are already included in the required rate of return.

• They are difficult to calculate.

• They are only relevant for equity financing

If a company sells 400 units of their product at an average price of $15 per unit, what is their total revenue?

• $6,000
• $4,500
• $4,000
• $7,500

How should the salvage value of an asset be treated at the end of a project?

• Ignored

• Added to the final year's cash flow

• Depreciated over the project’s duration

• Subtracted from the project’s initial cost

What is the formula to compute Net Present Value (NPV)?

• NPV = Total Cash Inflows - Total Cash Outflows

• NPV =Present Value of Cash Inflows - Present Value of Cash Outflows

• NPV = Future Value of Cash Inflows - Initial Investment

• NPV = initial investment - Future Value of Cash Inflows

Which of the following is not considered when calculating the initial investment (I0)?

• • Land purchase cost

• • Net working capital

• • Depreciation expense

• • Cost of industrial equipment

What is the initial investment (I0) if a project requires purchasing land for 100,000 TND, a building for 150,000 TND, a truck for 80,000 TND, industrial equipment for 50,000 TND, and net working capital of 30,000 TND?

• 310,000

• 380,000

• 410,000

• 430,000

If a project's annual sales are 150,000 TND, variable costs are 50,000 TND, and fixed operating costs including depreciation and amortization are 40,000 TND, what is the operating income before taxes?

• 60,000 TND

• 50,000 TND

• 40,000 TND

• 30,000 TND

If the book value of a building at the end of a project is 112,500 TND and its salvage value is 120,000 TND, what is the tax loss from the long-term asset if the tax rate is 30%?

• 2,250 TND

• 2,500 TND

• 2,850 TND

• 3,000 TND

Does the inclusion of financing costs in both the cash flows and the discount rate result in double-counting these costs in capital budgeting analysis?

• True

• False