17. Callable bonds will, all else equal, have? a. A higher interest rate. b. A lower interest rate. c. Not enough information. tal project being considered by a firm should be evaluated using what? a. Incremental cash flows b. Sunk Costs c. Opportunity costs d. Erosion or Side effect costs e. A, C & D only. 18. A capi 19. The depreciation tax shield of an investment results from the deduction of deprecation before arriving at taxable income. It is equal to the depreciation associated with the investment times the corporate tax rate. a. True b. False hen estimating cash flows for a project, one should consider the negative cash flow associated with net working capital investments at the start of the project and positive cash flow from getting this same working capital investment back at the end of the project. 20. a. True b. False 21. An increase in networking capital is a "use" of cash. (E.g. it is negative cash flow.) True b. False 22. Forecastin a. g risk (or estimation risk) is the risk that projected cash flow contains errors. Obviously, this can lead to bad conclusions a. True b. False 23. Sensitivity analysis can be used to investigate what happens to NPV when only one a. True b. False 24. Using table 10.3 in your textbook, what asset class has had the highest average return over the 85-year period from 1926-2011? a. Large stocks b. Small stocks c. Long-term corporate bonds d. Long-term government bonds e. U.S. Treasury bills 25. It is often useful to understand the risk premium of an asset class given the current interest rate environment, with US. Treasury bills currently yielding about 0.50%, what would you expect large cap stocks to return in the next 5 years or so? Show your work. (See table 10.3 in your text). 26. Risky assets, on average, earn a risk premium. There is a reward for bearing risk. True a. b. False