Question

1. The three main types of Cash Flow used in Discointed Cash Flow Analysis (as presented in class) are:

Multiple Choice

• Operating Cash Flow, Taxes, and Salvage Value

• Operating Cash Flow, Initial Investments, and Net Present Value

• Initial Investment, Net Working Capital, and Depreciation

• Initial Investment, Net Working Capital, and Operating Cash Flow

• Initial Investment, Terminal Value, and Operating Cash Flow

2. A cost that occurred in the past and is always to be excluded from discounted cash flow analysis is called:

Multiple Choice

• An Opportunity Cost

• A Sunk Cost

• Operating Cash Flow

• A Spillover or Side Effect Cost

Answer 1

Question 1:

The three main types of cash flows used in discounted cash flow analysis are

Initial Investment, Terminal value, and Operating Cash Flow

Note:

Depreciation is already included in calculation of operating cash flow

Net Working capital investment is included in initial investment and recovery is included in terminal hence this is part of three cash flows

Salvage value is included in terminal value

Taxes are included in Operating cash flow

Net Present value is the present value of all discounted cash flows

Question 2:

The cost that incurred in the past and is always excluded from discounted cash flow is called A Sunk Cost.

Opportunity cost is included in the discounted cash flow if the cash flow lost due to the insvestment

Operating Cash Flow is the cash flow from operations

A Spillover or side effect cost is called the costs involved in delivering the service or product