# Question: 1 When making capital expenditure decisions firms should not consider

1. When making capital expenditure decisions, firms should not consider which of the following?

a. After-tax incremental cash flows

b. Additional working capital requirements

c. Sunk costs

d. Salvage value

2. Which of the following will yield the same capital expenditure decisions?

a. Using nominal cash flows and a real discount rate versus using nominal cash flows and a nominal discount rate

b. Using nominal cash flows and a nominal discount rate versus using real cash flows and a real discount rate

c. Using real cash flows and a real discount rate versus using real cash flows and a nominal discount rate

d. Using nominal cash flows and a nominal discount rate versus using real cash flows and a nominal discount rate

3. When making capital expenditure decisions, firms should consider which of the following?

a. After-tax incremental cash flows

b. Sunk cost

c. Associated interest and dividend payments

d. Externalities

4. When making capital expenditure decisions, firms should not consider which of the following?

a. Change of working capital

b. Opportunity cost

c. All project interdependencies

d. Intangible considerations whose impact on cash flows cannot be estimated

5. What is the initial after-tax cash flow (CF0) of a project given the following information: initial cost = $400,050; R&D costs associated with the project = $10,000; associated opportunity costs = $90,000; decrease in inventory = $15,000; installation costs = $5,000.

a. $480,050

b. $510,050

c. $490,050

d. $530,050

6. Which of the following items is not included in the calculation of the ending (or terminal) cash flow (ECFn)?

a. Salvage value

b. Change in inventory levels

c. Change in accounts receivable levels

d. Operating cash flows

7. A firm has a project that is expected to generate annual revenue of $50,000, while incurring an annual cost of $18,000. The CCA is $45,000 and the tax rate is 40%. What is the after-tax cash flow?

a. $20,000

b. $19,200

c. $37,200

d. $68,000

8. A firm’s discount rate is 20%. Suppose annual revenue starts at $50,000; annual expenses start at $18,000; and both will grow at a rate of 6 percent from year 2 to year 15. What is the present value of operating cash flows for all 15 years?

a. $120,090

b. $115,810

c. $132,000

d. $109,088

a. After-tax incremental cash flows

b. Additional working capital requirements

c. Sunk costs

d. Salvage value

2. Which of the following will yield the same capital expenditure decisions?

a. Using nominal cash flows and a real discount rate versus using nominal cash flows and a nominal discount rate

b. Using nominal cash flows and a nominal discount rate versus using real cash flows and a real discount rate

c. Using real cash flows and a real discount rate versus using real cash flows and a nominal discount rate

d. Using nominal cash flows and a nominal discount rate versus using real cash flows and a nominal discount rate

3. When making capital expenditure decisions, firms should consider which of the following?

a. After-tax incremental cash flows

b. Sunk cost

c. Associated interest and dividend payments

d. Externalities

4. When making capital expenditure decisions, firms should not consider which of the following?

a. Change of working capital

b. Opportunity cost

c. All project interdependencies

d. Intangible considerations whose impact on cash flows cannot be estimated

5. What is the initial after-tax cash flow (CF0) of a project given the following information: initial cost = $400,050; R&D costs associated with the project = $10,000; associated opportunity costs = $90,000; decrease in inventory = $15,000; installation costs = $5,000.

a. $480,050

b. $510,050

c. $490,050

d. $530,050

6. Which of the following items is not included in the calculation of the ending (or terminal) cash flow (ECFn)?

a. Salvage value

b. Change in inventory levels

c. Change in accounts receivable levels

d. Operating cash flows

7. A firm has a project that is expected to generate annual revenue of $50,000, while incurring an annual cost of $18,000. The CCA is $45,000 and the tax rate is 40%. What is the after-tax cash flow?

a. $20,000

b. $19,200

c. $37,200

d. $68,000

8. A firm’s discount rate is 20%. Suppose annual revenue starts at $50,000; annual expenses start at $18,000; and both will grow at a rate of 6 percent from year 2 to year 15. What is the present value of operating cash flows for all 15 years?

a. $120,090

b. $115,810

c. $132,000

d. $109,088

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