Chapter 11 Test Question 1 The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted. a) none of these b) periodic c) ending cash flows d) incremental Question 2 The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as a) the stand-alone principle. b) the dependent principle. c) the independent principle. d) None of the above. Question 3 Corporate overhead allocations should only be taken into account on project analysis if a) the firm is currently covering all of its overhead allocations. b) the firm is currently unable to cover all of its overhead allocations. c) the overhead allocations involve cash expenditures. d) None of the above. Question 4 Which of the following is the best example of a sunk cost? a) Future payments on a leased building. b) Future research and development costs. c) Historical research and development costs. d) Historical noncash expenses. Question 5 For a U.S. corporation with income above $20 million, a) the average tax rate is less than the marginal tax rate. b) the average tax rate is equal to the marginal tax rate. c) the average tax rate is less than the marginal tax rate. d) None of the above. Question 6 Accounting earnings are a reliable measure of the costs and benefits of a project. a) False b) True Question 7 The impact of a project on another project's cash flows should be ignored. a) False b) True Question 8 Since our perspective when evaluating a project is that of all of the investors in the firm, creditors as well as stockholders, then we should evaluate the pretax cash flows produced by a project. a) True b) False Question 9 BioGeological Pharmaceuticals invested $100 million on a heart drug that does not prevent heart disease. BioGeological has since found that the drug does prevent diabetes. When considering whether to market the drug as a diabetic panacea, the firm should consider the $100 million spent while investigating the heart-related effects. a) False b) True Question 10 The MACRS depreciation tax schedule for three-year equipment provides a depreciation rate for a total of four years. a) True b) False