Which of the following statements concerning the principles underlying the capital budgeting process is most accurate?
Financing costs should be reflected in a project's incremental cash flows |
The net income for a project is essential for making a correct capital budgeting decision. |
Cash flows should be based on opportunity cost. |
Option "C" is correct, i.e., Cash flows should be based on opportunity cost.
The net present value decision tool is a more common and more effective in the investment decision making process.
The relevant cash flows for an investment are its incremental, after-tax, cash flows, which ignore financing costs and reflect adjustments for any non-cash charges, typically depreciation.
Which of the following statements concerning the principles underlying the capital budgeting process is most accurate?...
Based on the principles of capital budgeting, which of the following statements is most correct? Select one: O A. If a project's cash flows are classified as "normal", its MIRR must be positive. B. If a project's cash flows are classified as "normal", it will have multiple potential IRRs. O C. "Normal" cash flows are defined as a cash flow stream that has one or more negative cash flows followed by a stream of positive cash flows and then one...
2. The basic process and rules for capital budgeting Aa Aa The capital budgeting process consists of the following activities: I. Estimating the relevant cash flows II. Reviewing a project's post-implementation and post-termination performance III. Evaluating alternatives and selecting the projects to be implemented IV. Generating capital investment project proposals What is the correct sequence for these activities? O IV, II, III, I O I, IV, II, III There are several practical aspects of capital budgeting that complicate what appears...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's financing costs The project's depreciation expense Changes in net working capital associated with the project The project's fixed-asset expenditures O Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
3. Identifying incremental cash flows Aa Aa E When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's fixed-asset expenditures Changes in net working capital associated with the project The project's depreciation expense The project's financing costs Indirect cash flows often affect a firm's capital budgeting decisions. However,...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: O Changes in net working capital associated with the project The project's financing costs The project's depreciation expense The project's fixed-asset expenditures Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
To increase productive capacity, a company is considering a proposed new plant. Which of the following statements is CORRECT? a. Since depreciation is a non-cash expense, the firm does not need to deal with depreciation when calculating the operating cash flows. b. In calculating the project's operating cash flows, the firm should not deduct financing costs such as interest expense, because financing costs are accounted for by discounting at the cost of capital. If interest were deducted when estimating cash...
Ch 13: Assignment - Capital Budgeting: Estimating Cash 3. Identifying incremental cash flows When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's depreciation expense The project's fixed-asset expenditures The project's financing costs Changes in net working capital associated with the project Indirect cash flows often affect a...
Which of the following statements is FALSE? Net incomes are not cash flows. Incremental earnings are the amount by which the firm's earnings are expected to change as a result of the investment decision To the extent that overhead costs are fred and will be incurred in any case, they are incremental to the project and should be included in the capital budgeting analysis. Depreciation is not a cash expense paid by the form None of the above
8. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that...
6. Conclusions about capital budgeting Aa Aa The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check...