If there is no cash outflow related to a cost, the cost should not be included i

Question

If there is no cash outflow related to a cost, the cost should not be included in a capital budgeting analysis.

Question 1 options:

False

A firm's accountants would most likely be concerned about which type of foreign exchange risk?

Question 2 options:

reporting risk

transaction risk

translation risk

economic risk

3. What will be the Future Value of $2720 6 years from today if the interest rate earned is 3.80% with monthly compounding periods?

A firm with high carrying costs will likely have a restrictive working capital policy.

Question 4 options:

False

Past the point where the optimal capital structure exists, adding debt to the capital structure:

Question 5 options:

results in higher interest rates for the firm, and higher leverage. The higher leverage results in a riskier firm with a higher cost of equity.

violates SEC regulations if the excess debt is considered permanent.

results in the excess debt's interest not being tax deductible

Reduces the firms cost of equity

Because the purchase price of old equipment is a sunk cost, the sale of that equipment should have no impact on a capital budgeting analysis except for any tax impact of the sale.

Question 6 options:

False

A project's NPV is calculated by summing the present values of the future incremental cash flows of the project, and subtracting the amount of the required initial investment.

Question 7 options:

False

As a firm's debt increases, its _______________ also increases. This makes the firm more risky and tends to increase the firm's _____.

Question 8 options:

expected return / expected dividend payout

leverage / beta

market value / expected return

systematic risk / unsystematic risk

False

Explanation / Answer

Question 1)

In capital budgeting analysis all the relevant cash flows must be considered. Relevant cash flows may include both cash and non-cash cash flows.

Depreciation is a non-cash expense but depreciation saves tax. So it should be considered.

Hence, given statement is False.

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