Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 11, Problem 2RQ
Summary Introduction
To discuss: Whether
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Depreciation is a noncash expense: why is it considered when estimating a project net cash flows?
(b) Although depreciation is not a cash flow item, it plays an important role in thecalculation of cash flow. Describe the impact of depreciation on a project’s cash flow.
how can depreciation be a cash flow?
Chapter 11 Solutions
Foundations Of Finance
Ch. 11.A - Prob. 1MCCh. 11.A - Prob. 2MCCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - If a project requires an additional investment in...Ch. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 1SPCh. 11 - (Relevant cash flows) Captins Cereal is...
Ch. 11 - Prob. 3SPCh. 11 - Prob. 4SPCh. 11 - Prob. 5SPCh. 11 - Prob. 6SPCh. 11 - Prob. 7SPCh. 11 - Prob. 9SPCh. 11 - Prob. 10SPCh. 11 - Prob. 11SPCh. 11 - Prob. 12SPCh. 11 - Prob. 15SPCh. 11 - (Real options and capital budgeting) You have come...Ch. 11 - (Real options and capital budgeting) Go-Power...Ch. 11 - (Real options and capital budgeting) McDoogals...Ch. 11 - (Risk-adjusted NPV) The Hokie Corporation is...Ch. 11 - (Risk-adjusted discount rates and risk classes)...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Should the project be accepted? Why or why not?Ch. 11 - Prob. 11MCCh. 11 - Prob. 12MCCh. 11 - Prob. 13MCCh. 11 - Prob. 14MC
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- Is after-tax cashflow still the cash inflow even if it is the sum of NOPAT and depreciation in the project?arrow_forwardWhich of the following cash flows should not be considered when evaluating a project? Changes in working capital Shipping and installation costs Sunk costs Opportunity costs Externalitiesarrow_forwardWhat would be a business example that shows how depreciation and accelerated depreciation can affect project cash flows?arrow_forward
- Demonstrates the difference between depreciation costs as expenses and the cash flow generated by the purchase of a fixed asset? Give an example?arrow_forward“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.arrow_forwardWhich 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.arrow_forward
- Provide a brief explanation of why depreciation of capital assets is considered in determining potential net income from an investment, but not included in determining the net cash flow of an investment.arrow_forwardWhy should companies use a project’s cash flows rather thanaccounting income when determining a project’s NPV?arrow_forwardWhy is Cash Flow affected by depreciation.arrow_forward
- Discussion:Is the added precision from including taxes and depreciation in calculating project cash flows worth the effort? Should they be included in the calculations? Please discuss and justify your answer.arrow_forwardExplain how sunk costs and cannibalisation affect the determination of aninvestment’s incremental cash flows.arrow_forwardCash flows, rather than accounting profits, are used in project analysis. Whatis the basis for this emphasis on cash flows as opposed to net income?arrow_forward
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