Name: __________________________ Date: _____________________
1. Any changes to a firm's projected future cash flows that are caused by adding a new project are referred to as which one of the following?
A. Eroded cash flows
B. Deviated projections
C. Incremental cash flows
D. Directly impacted flows
E. Assumed flows
2. Which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows?
A. Forecast assumption principle
B. Base assumption principle
C. Fallacy principle
D. Erosion principle
E. Stand-alone principle
3. A cost that should be ignored when evaluating a project because that cost has already been incurred and cannot be…show more content… Discount rate which results in a zero net present value for the project
C. Discount rate which results in a net present value equal to the project's initial cost
D. Rate of return required by the project's investors
E. The project's current market rate of return
9. Which one of the following indicates that a project is expected to create value for its owners?
A. Profitability index less than 1.0
B. Payback period greater than the requirement
C. Positive net present value
D. Positive average accounting rate of return
E. Internal rate of return that is less than the requirement
10. Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities?
B. Profitability index
C. Accounting rate of return
D. Internal rate of return
E. Net present value
11. Lake City Plastics currently produces plastic plates and silverware. The company is considering expanding its product offerings to include plastic serving trays. Which of the following are cash flows relevant to the new product?
I. molds needed to form the serving trays
II. projected increase in plate and silverware sales if the trays are produced
III. a portion of the production manager's current annual salary of $75,000
IV. raw materials used in the production of the serving trays
A. I and IV only
B. III and IV only
C. I, II, and IV only