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[11].Changes in net operating working capital should not be reflected

Question : [11].Changes in net operating working capital should not be reflected : 1416411

 

[11].Changes in net operating working capital should not be reflected in a capital budgeting cash flow analysis because capital budgeting relates to fixed assets, not working capital.

 

a.True

b.False

 

[12].The primary advantage to using accelerated rather than straight-line depreciation is that with accelerated depreciation the total amount of depreciation that can be taken, assuming the asset is used for its full tax life, is greater.

 

a.True

b.False

 

[13].The primary advantage to using accelerated rather than straight-line depreciation is that with accelerated depreciation the present value of the tax savings provided by depreciation will be higher, other things held constant.

 

a.True

b.False

 

[14].Typically, a project will have a higher NPV if the firm uses accelerated rather than straight-line depreciation.  This is because the total cash flows over the project's life will be higher if accelerated depreciation is used, other things held constant.

 

a.True

b.False

 

[15].A firm that bases its capital budgeting decisions on either NPV or IRR will be more likely to accept a given project if it uses accelerated depreciation than if it uses straight-line depreciation, other things being equal.

 

a.True

b.False

 

[16].Accelerated depreciation has an advantage for profitable firms in that it moves some cash flows forward, thus increasing their present value.  On the other hand, using accelerated depreciation generally lowers the reported current year's profits because of the higher depreciation expenses.  However, the reported profits problem can be solved by using different depreciation methods for tax and stockholder reporting purposes.

 

a.True

b.False

 

[17].If a firm's projects differ in risk, then one way of handling this problem is to evaluate each project with the appropriate risk-adjusted discount rate.

 

a.True

b.False

 

[18].Superior analytical techniques, such as NPV, used in combination with risk-adjusted cost of capital estimates, can overcome the problem of poor cash flow estimation and lead to generally correct accept/reject decisions for capital budgeting projects.

 

a.True

b.False

 

[19].It is extremely difficult to estimate the revenues and costs associated with large, complex projects that take several years to develop.  This is why subjective judgment is often used for such projects along with discounted cash flow analysis.

 

a.True

b.False

 

[20].The two cardinal rules that financial analysts should follow to avoid errors are:  (1) in the NPV equation, the numerator should use income calculated in accordance with generally accepted accounting principles, and (2) all incremental cash flows should be considered when making accept/reject decisions for capital budgeting projects.

 

a.True

b.False

 

 

 

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