QUESTION 7 A project will include a $50,000 increase in inventory, a $20,000 increase in accounts receivable, and a $25,000 increase in accounts payable. If these are the only accounts in working capital what is the increase in working capital? $5,000 O $25,000 O $30,000 O $45,000 QUESTION 4 Allocations of overhead should not affect a project's incremental cash flows unless the: O project actually increased overhead expenses. O overhead can not be recovered at the end of the project. O overhead covers costs for the human resources department. O accounting department wants to allocate costs to all projects. QUESTION 5 Which of the following would not be expected to affect the decision of whether to undertake an investment? o Income tax rates. Estimates of inflation rates. O Sales reductions in other products caused by this investment. Cost of the feasibility study which was conducted for this project last year. QUESTION 6 What is the free cash flow for a firm with $500,000 profit before tax (EBIT), $100,000 depreciation expense, a 35% marginal tax rate, an increase in working capital of $50,000 and a capital investment of $50,000? $260,000 O $325,000 $360,000 0 $425,000 QUESTION 1 Sunk costs influence capital budgeting decisions only when the sunk costs exceed future cash inflows. O True O False QUESTION 2 The method of financing a project affects the determination of its cash flows for capital budgeting purposes. O True O False QUESTION 3 Which of the following methods will provide a correct analysis for capital budgeting purposes? O Discounting real cash flows with real rates. O Discounting real cash flows with nominal rates. O Discounting nominal cash flows with real rates. O All of these methods will provide similar results