The Cash Flows Of A Project Should

Question: The changes in a firm’s future cash flows that are a direct consequence of accepting a project are called _____ cash flows.

Answer: incremental

Question: The annual annuity stream of payments with the same present value as a project’s costs is called the project’s _____ cost.

Answer: equivalent annual

Question: A cost that has already been paid, or the liability to pay has already been incurred, is a(n):

Answer: sunk cost

Question: The most valuable investment given up if an alternative investment is chosen is a(n):

Answer: opportunity cost

Question: A decrease in a firm’s current cash flows resulting from the implementation of a new project is referred to as:

Answer: erosion costs

Question: The depreciation method currently allowed under U.S. tax law governing the accelerated write-off of property under various lifetime classifications is called _____ depreciation.

Answer: MACRS

Question: The cash flow tax savings generated as a result of a firm’s tax-deductible depreciation expense is called the:

Answer: depreciation tax shield

Question: The cash flow from a project is computed as the:

Answer: sum of the incremental operating cash flow, capital spending, and net working capital cash flows incurred by the project.

Question: Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates.

Answer: real

Question: The increase you realize in buying power as a result of owning an investment is referred to as the _____ rate of return.

Answer: real