Contemporary Financial Management
14th Edition
ISBN: 9781337090582
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: Cengage Learning
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Chapter 9, Problem 7QTD
Summary Introduction
To discuss: The reason why
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Depreciation is a noncash expense: why is it considered when estimating a project net cash flows?
Which 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
Externalities
Why should companies use a project’s cash flows rather thanaccounting income when determining a project’s NPV?
Chapter 9 Solutions
Contemporary Financial Management
Ch. 9.A - Prob. 1QTDCh. 9.A - Prob. 1PCh. 9.A - Prob. 2PCh. 9.A - Prob. 3PCh. 9.A - Prob. 4PCh. 9.A - Prob. 5PCh. 9 - Prob. 1QTDCh. 9 - Prob. 2QTDCh. 9 - Prob. 3QTDCh. 9 - Prob. 4QTD
Ch. 9 - Prob. 5QTDCh. 9 - Prob. 6QTDCh. 9 - Prob. 7QTDCh. 9 - Prob. 8QTDCh. 9 - Prob. 9QTDCh. 9 - Prob. 10QTDCh. 9 - Prob. 11QTDCh. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - Prob. 10PCh. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22P
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- (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.arrow_forwardWhy should companies use a project’s free cash flows rather than accountingincome when determining a project’s NPV?arrow_forwardDemonstrates the difference between depreciation costs as expenses and the cash flow generated by the purchase of a fixed asset? Give an example?arrow_forward
- Is after-tax cashflow still the cash inflow even if it is the sum of NOPAT and depreciation in the project?arrow_forwardExplain why depreciation should not be included as a cost in a discounted cash flow (DCF) analysis of a project.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
- Why are interest charges not deducted when a projects cash flows are calculated for use in a capital budgeting analysis?arrow_forwardProvide 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_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
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