QUESTION 2

1. Depreciation must be considered when evaluating the incremental operating cash flows associated with a capital budgeting project because:

	A.	it represents a tax-deductible cash expense.
	B.	the firm has a cash outflow equal to the depreciation expense each year.
	C.	depreciation is a cash flow that doesn't change.
	D.	depreciation has an impact on the taxes paid by the firm, which is a cash flow.
	E.	depreciation is a sunk cost.

QUESTION 3

1. Diversifiable risk includes _____.

	A.	liquidity risk
	B.	business risk
	C.	maturity risk
	D.	political risk
	E.	interest rate risk

5 points

QUESTION 4

1. Which of the following statements is correct?

	A.	A relatively risky future cash outflow should be evaluated using a relatively high discount rate.
	B.	Project risk estimation is independent of the beta coefficient.
	C.	If a firm's managers want to maximize the value of the stock, they should concentrate exclusively on the projects' market, or beta, risk.
	D.	If a firm has a beta that is less than 1.0, say 0.9, this would suggest that its assets' returns are negatively correlated with the returns of most other firms' assets.
	E.	If a firm evaluates all projects using the same required rate of return to determine NPVs, then the riskiness of the firm as measured by its beta will probably decline over time.