Question

6. Relevant cash flows ate the specific set of cash flows that a firm can expect if it implements the project. If the firm doesn’t implement the project, the cash flows won’t exist. So it is the additional cash flows that the company can expect from the project.

True

False

7. For a leveraged firm, the standard deviation of its Return on Invested Capital (σ_ROIC) is 1.8%, the standard deviation of its Return on Equity (σ_ROE) is 5.8%. So its calculated financial risk is: _____

		1.8%
		4.0%
		5.8%
		7.6%

9. Generally, the corporate cash distribution policy defines: ______

		The level of cash distributions to shareholders.
		The form of the distribution (dividend vs. stock repurchase).
		The stability of the cash distribution.
		All of above

23. Depreciation is a non-cash charge, but it does have an indirect impact on the cash budget.

True

False

Answer 1

Answers-

Q 6)

The statement is True. The cash inflows or outflows which occur as a result of a project will be included as the relevant also known as  incremental cash flows.  Incremental cash flow is the additional operating cash flow that an organization receives by undertaking on a new project.

Q 7)

The correct option is 5.8 %. standard deviation of its Return on Equity (σ_ROE) is the financial risk.

standard deviation of its Return on Invested Capital (σ_ROIC) is no affected by leverage and hence is not considered for financial risk. It is used fofr business risk.

Q 9)

The correct option is The level of cash distributions to shareholders.

The cash distribution policy involves the distribution of cash and not stock repurchase. it also does not depend on stability of cash distribution.  

Q 23)

The statement is True.

Depreciation is a non cash charge but it impacts the cash budget. It has indirect effect on cash flow because it changes the company's tax liabilities which reduces cash outflows from income taxes.