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Exam (elaborations)

Finance 320F Exam Study Guide with complete solutions

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  • Course
  • FIN 320F
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  • FIN 320F

Finance 320F Exam Study Guide with complete solutions Incremental Cash Flows After Taxes (ICFAT) - Answer️️ -are the periodic cash outflows and inflows that occur if, and only if, an investment project is accepted. Incremental cash flow focus on the project, not the company as a whole. Eco...

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  • September 15, 2024
  • 21
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • FIN 320F
  • FIN 320F
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Finance 320F Exam Study Guide with
complete solutions


Incremental Cash Flows After Taxes (ICFAT) - Answer✔️✔️-are the periodic cash

outflows and inflows that occur if, and only if, an investment project is accepted.

Incremental cash flow focus on the project, not the company as a whole.


Economic interdependencies - Answer✔️✔️-Adopting a project would change the cash

flows in other parts of the company.

Synergy - Answer✔️✔️-The positive effect where adopting the project would increase the

cash flows from existing operation.

Erosion - Answer✔️✔️-The negative effect where adopting the project would decrease

the cash flows from existing operations

Sunk costs - Answer✔️✔️-Costs that have already been incurred. As such they would not

be affected by the capital budgeting decision and are thus not incremental cash flows.

Revenue enhancing project - Answer✔️✔️-These projects introduce a new product,

improve an existing product, or involve other aspects to increase sales, such as a major

marketing campaign.

Cost reduction project - Answer✔️✔️-These projects focus on reducing costs.

Outsourcing of business functions or production, improving supply chains, employing

machine learning lead to lower costs and thus higher income.



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, ©SOPHIABENNETT 2024/2025 9:45 AM


Corporate Social Responsibility project - Answer✔️✔️-The ExxonMobil project is an

example of corporations contributing to society. While the corporation's function in

society is to efficiently produce goods and services, corporations are expected to be

good citizens. These projects do help society, and also enhance the reputation of the

company.

Regulatory requirements project - Answer✔️✔️-Governments regulate economic activity

to protect society from harmful effects. The most cost-effective way to handle toxic

waste from a production process is to dump it into Lake Lady Bird. These projects are

undertaken because they are required.

Free Cash Flow (FCF) from assets - Answer✔️✔️-The amount of cash generated by a

company that is available to distribute to the firm's creditors and owners



Operating cash flow: is earnings before interest plus depreciation minus taxes. and, its

important to remember that these cash flows have not yet occurred--we estimate what

they would be if the project were to be adopted.



Capital spending: is the cash that must be invested in the project's capital assets to

produce the projected operating cash flow! any operating cash flow that must be

invested in productive assets is not available for the company's security holders, so the

projected capital expenditures must be subtracted from the operating cash flow.



Additions to Net working capital: Are investments in the project's short term assets. A

project may require investments in such items as accounts payable and inventory.


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