Bus 401 Week 3 Quiz

BUS 401 Week 3 Quiz
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1.) The appropriate cash flows for evaluating a corporate investment decision are:
incremental additional cash flows.
marginal after-tax cash flows.
incremental after-tax cash flows.
investment after-tax cash flows.

2.) The typical corporate investment requires a large cash outlay followed by several years of cash inflows. To make these cash flows comparable, we do which of the following?
Adjust both cash outflows and inflows for taxes.
Subtract interest charges to reflect the time value of money.
Adjust both outflows and inflows for the effects of depreciation.
Apply time value of money concepts and compare present values.

3.) If depreciation expense is a noncash charge, why do we consider it when determining cash flows?

because depreciation expense reduces taxable income, so reduces the amount of taxes paid
because depreciation expense offsets part of the initial cash outlay for depreciable assets
because depreciation expense reduces net income
because depreciation expense is a method for allocating costs

4.) The internal rate of return is:
the discount rate at which the NPV is maximized.
the discount rate used by people within the company to evaluate projects.
the rate of return that a project must exceed to be acceptable.
the discount rate that equates the present value of benefits to the present value of costs.

5.) Chapter 7 introduced three methods for evaluating a corporate investment decision. Which of the following is not one of those methods?
payback period
net present value (NPV)
return on assets (ROA)
internal rate of return (IRR)

6.) In perfect capital markets, the capital structure decision is:
important because it affects the cash flows to shareholders.
important because debt and equity are taxed differently.
irrelevant because the decision has no effect on cash flows.
important sometimes....