Homework answers / question archive / University of Illinois, Urbana Champaign - FIN 221 Chapter 12 Pre-Flight 1)If a company would still have a cash flow item even if they rejected potential new Project A, should this particular cash flow item be included in Project A's cash flow analysis? a

University of Illinois, Urbana Champaign - FIN 221 Chapter 12 Pre-Flight 1)If a company would still have a cash flow item even if they rejected potential new Project A, should this particular cash flow item be included in Project A's cash flow analysis? a

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University of Illinois, Urbana Champaign - FIN 221

Chapter 12 Pre-Flight

1)If a company would still have a cash flow item even if they rejected potential new Project A, should this particular cash flow item be included in Project A's cash flow analysis?

a. Yes

b. No

c. Maybe, it depends on the situation

 

 

2. In the cash flow information for the Ping Kings project, Ping spent $300,000 for research and development of the golf clubs. Ping's tax rate is 40%. How much of this cost should be included in the initial (t = 0) cash flow for this project?

a. $300,000

b. $180,000

c. $120,000

 

d. $0   

 

3. What is operating cash flow?

a.         Incremental Operating income

b.         incremental net income

c.         incremental operating income plus depreciation

d. incremental net income plus depreciation

 

4. A company expects to need to increase their net working capital by $100,000 at the beginning of a potential project's life. By how much would this event affect the project's terminal cash flow at the end of its expected life if the company's tax rate is 40%

a. -$100,000

b. $0

c. +$60,000

d. +$100,000

 

5. Which of the following should be included from the cash flow analysis for a potential project?

a.         opportunity costs

b.         interest expense

c.         sunk costs

d.         none of the above

 

6. How many years should be used to find the extended net present value for two repeatable mutually exclusive projects with a 3-year and 4-year life?

a. 3

b. 4

c. 6

d. 12

 

7. If a company would need to increase net working capital to start a potential new project how should it be treated in the project's cash flow analysis?

a.         The increase in net working capital should be an inflow as part of the project's initial cash flow.

 

b.         The increase in net working capital should be an outflow as part of the project's initial cash flow

 

c.         The increase in net working capital times (one minus the company's tax rate) should be

 

an inflow as part of the project's initial cash flow.

 

d.         The increase in net working capital times (one minus the company's tax rate) should be an outflow as part of the project's initial cash flow.

 

 

8. Which of the following methods can be used to compare mutually exclusive repeatable projects with unequal lives if inflation in the costs and/or cash flows of the projects is expected when the projects are repeated?

 

a.         Equivalent annual annuity

 

b.         Replacement chain approach

 

c.         Both a and b can be used

 

d.         None of the above

 

9. What needs to be determined when estimating cash flows for a potential new project?

   a. The incremental after-tax cash flows associated with the project

b.         Only the incremental net income associated with the project

c.         Only the incremental operating income associated with the project

d.         None of the above.

 

10. Which of the following should be used in determining a potential project's operating cash flow?

a.         Incremental revenue

b.         Depreciation on new equipment purchased for the project

c.         Incremental expenses

d. All of the above

 

11. Which of the following should be excluded from the cash flow analysis for a potential project?

a.         Externalities

b.         Opportunity Costs

c. Interest expense

d. Cannibalization effects

 

12. What are the different type(s) of cash flows that need to be forecasted for a new project?

a.         Initial Cash Flow

b.         Operating Cash Flows

c.         Terminal Cash Flow

d. All of the above

 

 

13. All else constant, how would an increase in annual depreciation affect a project's operating cash flow?

a.         The operating cash flow would decrease.

b.         The operating cash flow would be unchanged.

c.         The operating cash flow would increase

d.         The operating cash flow can go up or down.

 

 

14.       A potential new project has an expected salvage value of $200,000 and an expected book value of $120,000 at the end of its 5-year expected life. What taxes would the company own at the end of year 5 because of this project's expected salvage value of their tax rate is 40%.

 

a. $0

b. $32,000

 c. $48,000

d. $80,000

 

15. Which of the following methods can be used to compare mutually exclusive repeatable projects with unequal lives if inflation in the costs and/or cash flows of the projects is expected when the projects are repeated?

a. Equivalent  annual  annuity

b. Replacement chain approach

 c. Both a and b can be used

d. None of the above