Cashflows for Capital Budgeting

What is the measure of of economic income on which most analysts today prefer to focus for valuation and capital investment project selection:

• EBITDA

• EBIT

• Net Income

• Net Cash Flow

In proper capital budgeting analysis we evaluate incremental

• Accounting Income

• Cash Flow

• Earnings

• Operating Profit

Taxing authorities allow the fully installed cost of an asset to be written off for tax purposes. This amount is called the asset's

• Cost of Capital

• Initial Cash Outlay

• Depreciable value of asset

• Sunk Cost

All of the following influence capital budgeting cash flows EXCEPT:

• depreciation

• Salvage value

• Tax rate

• Method of project financing used

Adam Smith is considering automating his pin factory with the purchase of a $475,000 machine. Shipping and installation would cost $5,000. Smith has calculated that automation would result in savings of $45,000 a year due to reduced scrap and $65,000 a year due to reduced labor costs. The machine has a useful life of 4 years and follows straight-line depreciation for tax purposes. The estimated final salvage value of the machine is $120,000. The firm's marginal tax rate is 34 percent. The incremental cash outflow at time period 0 is closest to

• 280000

• 380000

• 480000

• 580000

Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?

• Increased operating costs

• Overhaul of equipment

• Salvage value of equipment when project is complete

• Depreciation expense

If a company's required rate of return is 10% and, in using the net present value method, a project's net present value is zero, this indicates that the

• Project's rate of return exceeds 10%.

• Project's rate of return is less than the minimum rate required.

• Project earns a rate of return of 10%.

• Project earns a rate of return of 0%.