A rule of thumb when analyzing cash flows of a proposed project is, “If your decision...
A rule of thumb when analyzing cash flows of a proposed project is, “If your decision does not affect a cash flow then the cash flow should not affect your decision”. This maxim best refers to:
A. opportunity costs.
B. sunk costs.
C. real options.
D. project externalities.
Select and explain your answer.
Homework Answers
If your decision does not affect a cash flow then the cash flow should not affect your decision”. This maxim best refers to SUNK COST.
Sunk Costs are historical costs. They dont afffect the decisions in hand because they are already expensed. They are not going to change the decision becuase these costs are already done.
NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.
Add Answer to:
A rule of thumb when analyzing cash flows of a proposed project
is, “If your decision...
A firm evaluates all of its projects by applying the NPV decision rule. A proposed project...
A firm evaluates all of its projects by applying the NPV decision rule. A proposed project is expected to have the following cash flows: Year Cash Flow 0 $ (26,000) 1 $ 11,000 2 $ 14,000 3 $ 10,000 a) At a required return of 11 percent, what is the project's NPV? Should the firm accept this project? b) At a required return of 24 percent, what is the project's NPV? Should the firm accept this project? Is there an...
1. When determining relevant cash flows for project evaluation, we should _____. a. discount interest expenses...
1. When determining relevant cash flows for project evaluation, we should _____. a. discount interest expenses to the present b. subtract interest expenses from EBIT c. ignore interest expenses d. add back in interest expenses after subracting taxes 2. When calculating incremental cash flows, we should exclude _____. a. side effects b. taxes c. opportunity costs d. sunk costs 3. When calculating incremental cash flows, we should include _____. a. interest b. sunk costs c. financing expenses d. opportunity costs...
Question 7 (10 marks] 7.1. 7.2. Operating cash flows, rather than accounting profits, are used in project analysis. Wha...
Question 7 (10 marks] 7.1. 7.2. Operating cash flows, rather than accounting profits, are used in project analysis. What is the basis for this emphasis on cash flows as opposed to net income? (4) Why is it true, in general, that a failure to adjust expected cash flows for expected inflation biases the calculated NPV downward? (2) Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included. 7.3.
To increase productive capacity, a company is considering a proposed new plant. Which of the following...
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...
D l Question 1 When calculating incremental cash flows, we should include O interest O financing...
D l Question 1 When calculating incremental cash flows, we should include O interest O financing expenses Q sunk costs opportunity costs | Question 2 2 pts The cash flows that occur just because of a new project are called O marginal cash flows o project cash flos e additional cash flows O incremental cash flows 2 pts D | Question 3 Sun Corp. uses a discount rate of 6% for below-average risk projects, 8% for average-risk projects, and 10%...
A company is considering a proposed expansion to its facilities. Which of the following statements is...
A company is considering a proposed expansion to its facilities. Which of the following statements is most correct? In calculating the project's operating cash flows, the firm should not subtract out financing costs such as interest expense, since these costs are already included in the WACC, which is used to discount the project’s net cash flows. Since depreciation is a non-cash expense, the firm does not need to know the depreciation rate when calculating the operating cash flows....
9. What is the intuition behind the IRR rule? Under what conditions will the IRR rule...
9. What is the intuition behind the IRR rule? Under what conditions will the IRR rule and the NPV rule give the same accept/reject decision? 10. Explain what is meant by ‘mutually exclusive projects’ and why it is generally a bad idea to use IRR to choose between mutually exclusive projects? 11. Using an example of each, explain sunk costs and opportunity costs. Which of these costs should be included in incremental cash flows and which should be excluded? 12....
Which of the following is a basic principle when estimating a project's cash flows? Cash flows...
Which of the following is a basic principle when estimating a project's cash flows? Cash flows should be measured on a pretax basis accounting for the risk of individual projects Cash flows should ignore depreciation because it is a noncash charge Only direct effects of a project should be included in cash flow calculations Cash flows should be measured on an incremental basis D 4. In estimating the net investment, an outlay that has already been made is known as...
When you evaluate a proposed project you should: include sunk costs. include all indirect effects. ignore...
When you evaluate a proposed project you should: include sunk costs. include all indirect effects. ignore opportunity costs. allocate a percentage of current overhead costs to the project.
For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow...
For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 $ 148,000 WN - o 68,000 71,000 55,000 a. At a required return of 9 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. At a required return of 20 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign....
Question 7 (10 marks] 7.1. 7.2. Operating cash flows, rather than accounting profits, are used in project analysis. What is the basis for this emphasis on cash flows as opposed to net income? (4) Why is it true, in general, that a failure to adjust expected cash flows for expected inflation biases the calculated NPV downward? (2) Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included. 7.3.
D l Question 1 When calculating incremental cash flows, we should include O interest O financing expenses Q sunk costs opportunity costs | Question 2 2 pts The cash flows that occur just because of a new project are called O marginal cash flows o project cash flos e additional cash flows O incremental cash flows 2 pts D | Question 3 Sun Corp. uses a discount rate of 6% for below-average risk projects, 8% for average-risk projects, and 10%...
Which of the following is a basic principle when estimating a project's cash flows? Cash flows should be measured on a pretax basis accounting for the risk of individual projects Cash flows should ignore depreciation because it is a noncash charge Only direct effects of a project should be included in cash flow calculations Cash flows should be measured on an incremental basis D 4. In estimating the net investment, an outlay that has already been made is known as...
For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 $ 148,000 WN - o 68,000 71,000 55,000 a. At a required return of 9 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. At a required return of 20 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign....
Most questions answered within 3 hours.
-
(a) A piston at 6.1 atm contains a gas that occupies a volume of
3.5 L....
asked 1 hour ago -
Please answer true or false. Words
cannot be changed or added in to make it true...
asked 1 hour ago -
An empty test tube weighs 15.923 grams. Then,
MgCl2•6H2O is added into the test tube. After...
asked 1 hour ago -
Assume memory access is 10 units of time and disk access is
10000 units of time....
asked 1 hour ago -
1. Are all good samples random?
2. Magazines often report surveys giving statistics such as “63%...
asked 1 hour ago -
Under all the various types of market structures, firms
must eventually earn some economic profits for...
asked 1 hour ago -
Consider the following fitness regime for a single locus trait
with two co-dominant alleles: w11 =...
asked 1 hour ago -
A large cable company reports the following.
80% of its customers subscribe to its cable TV...
asked 1 hour ago -
Please answer the question in brief.
Discuss the role of ERP in organizations. Are ERP tools...
asked 1 hour ago -
Discuss the pros and cons of collaborative software such
as SameTime. Does it increase productivity? What...
asked 1 hour ago -
Buying your in-laws a gift because it’s expected is
due to the ____________ motive of gift-giving....
asked 1 hour ago -
Calculate the expected value, the variance, and the standard
deviation of the given random variable X....
asked 2 hours ago