Question: QUESTION 6: (10) In capital budgeting analysis, why do we focus on cash flow rather than accounting profit? [2] Should the costs of evaluating a

QUESTION 6: (10)

  1. In capital budgeting analysis, why do we focus on cash flow rather than accounting profit? [2]
  2. Should the costs of evaluating a project be included as a portion of the projects cost? [2]
  3. Is the ability to use money allocated to a project for another purpose an example of a sunk cost? [2]
  4. Explain how depreciation creates a cash inflow even though there is no cash inflow or outflow associated with the depreciation deductions themselves. [2]
  5. Is a negative change in net working capital a problem (assuming profitability and sales are maintained)? [2]

QUESTION 6: (10)

  1. In capital budgeting analysis, why do we focus on cash flow rather than accounting profit? [2]
  2. Should the costs of evaluating a project be included as a portion of the projects cost? [2]
  3. Is the ability to use money allocated to a project for another purpose an example of a sunk cost? [2]
  4. Explain how depreciation creates a cash inflow even though there is no cash inflow or outflow associated with the depreciation deductions themselves. [2]
  5. Is a negative change in net working capital a problem (assuming profitability and sales are maintained)? [2]

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