Question

true or false

1. The main components needed to estimate a​ project’s incremental cash flows are the initial capital​ investment, the change in​ NWC, net income and the​ firm’s market share.

2. Use of a​ firm’sexisting assets in a proposed project would result in an erosion cost.

3. Working capital accounts typically go up at the beginning of a project and are then decreased later.

4. ​ Temple’s payment of​ $1M to an architectural firm for a feasibility study of a new football stadium is an example of a sunk cost.

5. Straight-linedepreciation is higher in the later years of a​ project’slife

6. The market value of a​ long-termasset at any point in time is equal to the​ asset’soriginal cost plus all of the depreciation that has been taken on that asset.

7. Sale of a piece of equipment at a gain reduces the CF from salvage

8. The installation cost is added to the accumulated depreciation of an asset to get the initial capital investment.

9. Cogswell Cola needed to purchase additional inventory of plastic bottles to launch its Pulsar Cola. This decrease in inventory represents a positive cash flow associated with the project.

10. Opportunity costs add to a​ project’scash flows while erosion costs and synergy gains reduce those cash flows.

11. Opportunity costs have no impact on a​ project’sincremental CFs.

12. If the company had a large depreciation expense during the​ period,the income statement could show a loss for the​ period,even though the cash account may have grown during the same period.

Answer 1