True or False a.) Generally, even though the acquisitions are recent, the net realizable value of the individual assets is less than their book value because of the value of synergy. b.) A project would be considered acceptable if the net present value of the operating cashflows and terminal value is more than the net investment of the project.

True or False a.) Generally, even though the acquisitions are recent, the net realizable value of the individual assets is less than their book value because of the value of synergy. b.) A project would be considered acceptable if the net present value of the operating cashflows and terminal value is more than the net investment of the project.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 4Q

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A project is rejected under the net present value method when: a. The percentage return is greater than a predetermined minimum percentage b. Total net cash inflows exceed the purchase price of the asset c. The acquisition cost the asset is greater than than the present value of net cash inflows d. The present value of net cash inflows exceeds a predetermined minimum amount
True or False In the net present value method, market research costs incurred in the past should be included in the net cash flows as they are directly related to the feasibility of the project.
Which of the following statements is most correct? If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value (NPV) must be positive. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital. Answers a and c are correct. None of the answers above are correct.
“When evaluating projects, we’re concerned with only the relevant incremental after-tax cash flows. Therefore, because depreciation is a non-cash expense, we should ignore its effects when evaluating projects.” Critically evaluate this statement.
Under IFRS, research must be expensed but some development expenditures may be capitalized. To capitalize development expenditures, firms must demonstrate several factors that include all of the following except: Multiple Choice technical feasibility. length of time the intangible asset is expected to provide benefits. ability to use or sell the asset. how the intangible asset will generate probable future economic benefits.
Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a. Shipping and installation costs. b. Cannibalization effects. c. Opportunity costs. d. Sunk costs that have been expensed for tax purposes. e. Changes in net working capital. Please explain your answer for better understanding.
4) Which of the following cash flows should be excluded from a net present value evaluation of an investment project? A) An increase in fixed costs due to leasing a new building for the project. B) An increase in debtors and stocks expected to occur as a result of undertaking the project. C) The purchase cost of materials that can be used in the project but that the company uses regularly in other operations. D) Interest charges on a loan taken out to finance the project
Which of the following is an advantage of Net present value? a. Investment potential ignored b. Useful in evaluating mutually exclusive projects c. Considers time value of money d. Easy to calculate
Which of the following statements is false? The equivalent annual value of a project is equal to the net present value of a project held in perpetuity, divided by the required rate of return. None of the given options is false. Management may select a project with a lower net present value because qualitative factors may render the other project less attractive. The rejection of positive net present value projects by management is inconsistent with the objective of maximising shareholder wealth.
True or False: If a project involves buying an asset, and if the company uses “accelerated depreciation” for tax purposes, after-tax cash flows for the project would be smaller in earlier years of the project than if the company used “straight line depreciation”, and therefore the project’s NPV would be smaller if it used accelerated depreciation, compared to the NPV if it used straight-line depreciation. Explain your answer.
Adjusted present value technique is a technique that A) adjusts conventional present value for nonconstant cash inflows B) suggests separating tax savings from interest in the cash flows within the valuation process C) is used to value a project for a multinational corporation D) simply adjusts the conventional present value for nominal interest
Which of the following statements is true about the internal rate of return? a. It is the interest rate that sets a project's net present value at zero. b. It is the minimal acceptable interest rate on an investment. c. It is the difference between the present value of the cash inflows and outflows associated with a project. d. It is the difference between the present value of a cash outflow and the depreciation associated with an asset.