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FNCE CH 10 TEST LATEST UPDATE
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FNCE CH 10 TEST LATEST UPDATE1. The changes in the firm's future cash flows that are a direct consequence of
accepting a project
are called:
A. Incremental cash flows.
B. Stand-alone cash flows.
C. After-tax cash flows.
D. Net present value cash flows.
E. Erosion cash flows. - ANSWER A
2. The evaluation of a project based solely on its incremental cash flows is the basis
of the:
A. Incremental cash flow method.
B. Stand-alone principle.
C. Dividend growth model.
D. After-tax salvage value analysis.
E. Discounted payback method. - ANSWER B
3. A cost that has already been paid, or the liability to pay has already been
incurred, is a(n):
A. Salvage value expense.
B. Net working capital expense.
C. Sunk cost.
D. Opportunity cost.
E. Erosion cost - ANSWER C
, 4. The most valuable investment given up if an alternative investment is chosen is
a(n):
A. Salvage value expense.
B. Net working capital expense.
C. Sunk cost.
D. Opportunity cost.
E. Erosion cost. - ANSWER D
5. The cash flows of a new project that come at the expense of a firm's existing
projects are:
A. Salvage value expenses.
B. Net working capital expenses.
C. Sunk costs.
D. Opportunity costs.
E. Erosion costs. - ANSWER E
6. A pro forma financial statement is one that __________________________.
A. projects future years' operations
B. is expressed as a percentage of the total assets of the firm
C. is expressed as a percentage of the total sales of the firm
D. is expressed relative to a chosen base year's financial statement
E. reflects the past and current operations of the firm - ANSWER A
7. The cash flow from projects for a company is:
A. The net operating cash flow generated by the project, less any sunk costs and
erosion costs.
B. The sum of the incremental operating cash flow and after-tax salvage value of
the project.
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