The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment. Incremental Cash Flow: The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives. Opportunity Cost : Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

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Answer 1

Question

Chapter 6, Problem 2CQ

a.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment.

Incremental Cash Flow:

The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives.

Opportunity Cost:

Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

b.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

c.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is research cost in relation to product in the last 3 years.

Sunk Cost:

Sunk cost means that cost that has been incurred in the past and has no effect on the future project. It is that cost that is related to past events that cannot be recovered and is irrelevant for the new projects of a company.

d.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

e.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

f.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

g.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

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In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. True or False The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash outflows with the present value of its cash inflows. True or False The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the company's cost of capital. True or False An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project. True False The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero. True False The production budget is typically prepared before the direct materials budget. True False The selling and administrative budget is typically prepared…

True of false a. Normal Payback Period is the number of years required to recover the funds invested in a project from its operating cash b. Investing activities are how much cash is generated from companies’ products or services. c. Market Value ratios are how well company is using its assets and liabilities internally.

Payback Method The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large?

Answer 2

Question

Chapter 6, Problem 2CQ

a.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment.

Incremental Cash Flow:

The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives.

Opportunity Cost:

Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

b.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

c.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is research cost in relation to product in the last 3 years.

Sunk Cost:

Sunk cost means that cost that has been incurred in the past and has no effect on the future project. It is that cost that is related to past events that cannot be recovered and is irrelevant for the new projects of a company.

d.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

e.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

f.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

g.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

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Answer 3

Question

Chapter 6, Problem 2CQ

a.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment.

Incremental Cash Flow:

The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives.

Opportunity Cost:

Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

b.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

c.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is research cost in relation to product in the last 3 years.

Sunk Cost:

Sunk cost means that cost that has been incurred in the past and has no effect on the future project. It is that cost that is related to past events that cannot be recovered and is irrelevant for the new projects of a company.

d.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

e.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

f.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

g.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

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Answer 4

Question

Chapter 6, Problem 2CQ

a.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment.

Incremental Cash Flow:

The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives.

Opportunity Cost:

Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

b.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

c.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is research cost in relation to product in the last 3 years.

Sunk Cost:

Sunk cost means that cost that has been incurred in the past and has no effect on the future project. It is that cost that is related to past events that cannot be recovered and is irrelevant for the new projects of a company.

d.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

e.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

f.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

g.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

Expert Solution & Answer

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Answer 5

Chapter 6, Problem 2CQ

a.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment.

Incremental Cash Flow:

The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives.

Opportunity Cost:

Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

b.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

c.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is research cost in relation to product in the last 3 years.

Sunk Cost:

Sunk cost means that cost that has been incurred in the past and has no effect on the future project. It is that cost that is related to past events that cannot be recovered and is irrelevant for the new projects of a company.

d.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

e.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

f.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

g.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

Answer 6

Chapter 6, Problem 2CQ

a.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment.

Incremental Cash Flow:

The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives.

Opportunity Cost:

Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

Answer 7

Chapter 6, Problem 2CQ

a.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is reduction in company sales due to investment.

Incremental Cash Flow:

The addition to the current cash flow of the company based on the acceptance of the new project or expansion plan is called additional cash flow. It is used to evaluate the financial viability of different alternatives.

Opportunity Cost:

Opportunity cost means the cost of missed opportunity. It refers to the advantage that a company could have gained, but gave up, to take an alternative action.

Answer 8

b.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

Answer 9

b.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

Answer 10

c.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is research cost in relation to product in the last 3 years.

Sunk Cost:

Sunk cost means that cost that has been incurred in the past and has no effect on the future project. It is that cost that is related to past events that cannot be recovered and is irrelevant for the new projects of a company.

Answer 11

c.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is research cost in relation to product in the last 3 years.

Sunk Cost:

Sunk cost means that cost that has been incurred in the past and has no effect on the future project. It is that cost that is related to past events that cannot be recovered and is irrelevant for the new projects of a company.

Answer 12

d.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

Answer 13

d.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

Answer 14

e.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

Answer 15

e.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

Answer 16

f.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

Answer 17

f.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

Answer 18

g.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

Answer 19

g.

Summary Introduction

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

Answer 20

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Answer 21

Expert Solution & Answer

Answer 22

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Answer 23

Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQ Ch. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQ Ch. 6 - Prob. 6CQ Ch. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQ Ch. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is expenses on equipment and plants are not made and would be made on acceptance of project.

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is annual expense of depreciation on investment.

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, the item is dividend payments.

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are plant and equipment resale value end of project life.

To identify: The items that should be treated as incremental cash flow when computing the net present value (NPV) of an investment. Here, items are medical costs and salary given to production personnel.

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