MULTIPLE CHOICE:

$1.$Free cash flow for the final period of a cash flow...

A$.$will not be affected by cash released by net working capital which is no longer required.

B$.$writes off cash invested in net working capital as a loss.

C$.$will be increased by cash released by net working capital which is no longer required.

D$.$will be decreased by cash released by net working capital which is no longer required.

$3.$Which would be a primary reason that understanding terminal value is important to decison$-$makers?

A$.$The terminal value might include unrealistically optimistic assumptions, which would cause a higher net present value than the project should have.

B$.$The terminal value might include assumptions about the tax effect of selling fixed assets, which is not relevant to the net present value of a project.

C$.$The terminal value might include the release of cash from net working capital no longer needed, which is not relevant to the net present value of a project.

D$.$The terminal value might include unrealistically optimistic assumptions, which would cause a lower net present value than the project should have.

$7.$Free cash flow for the final period of a project will include...

A$.$the proceeds from selling fixed assets no longer needed only if the assets are sold at a gain.

B$.$the proceeds from selling fixed assets no longer needed only if the assets are sold at a loss.

C$.$the untaxed proceeds from selling fixed assets no longer needed.

D$.$the after$-$tax proceeds from selling fixed assets no longer needed.

$8.$In the initial investment, capitalized costs would include:

A$.$the price paid for a piece of equipment net of any sales taxes, shipping and installation costs.

B$.$the price paid for a piece of equipment, excluding any sales taxes, shipping and installation costs.

C$.$the price paid for a piece of equipment, as well as any sales taxes, shipping and installation costs.

D$.$the price paid for a piece of equipment, as well as any sales taxes, shipping, installation costs and training expenses to get employees ready to use the equipment.

$9.$Operating expenses, such as training costs, which are required to launch a project...

A$.$will increase the taxes paid as part of the initial investment.

B$.$will not be part of NOPAT in the initial investment.

C$.$will not affect taxes considered in the initial investment.

D$.$will be part of NOPAT in the initial investment.

TRUE OR FALSE ALL FOLLOWING QUESTIONS:

$2.$If a project begins by replacing an obsolete piece of equipment, the initial investment will be reduced by the after$-$tax proceeds from selling the obsolete piece of equipment.

$4.$An initial investment which does not include all the actual costs involved might cause a project to be approved which would cost more than it is worth.

$5.$The annual depreciation in a project is based on the free cash flow representing the total initial investment.$$

$6.$Free cash flow for the final period of a project will include the after$-$tax proceeds from selling fixed assets no longer needed whether the assets are sold at a gain or at a loss.

$10.$If the initial investment does not include all of the actual costs involved, the present value of a project will be understated.