How is depreciation treated in the indirect method of estimating project cash flows? O Include the cash amount of depreciation in the project's cash flows each year O Add back depreciation in arriving at profit before tax, then deduct after tax has been deducted Deduct depreciation in arriving at profit before tax, then add back after tax has been deducted O Ignore completely as it is à non-cash expense OOO

How is depreciation treated in the indirect method of estimating project cash flows? O Include the cash amount of depreciation in the project's cash flows each year O Add back depreciation in arriving at profit before tax, then deduct after tax has been deducted Deduct depreciation in arriving at profit before tax, then add back after tax has been deducted O Ignore completely as it is à non-cash expense OOO

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 7QTD

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To get a project's after-tax cash flow, you must subtract depreciation as though it is an expense from the taxable income and then add it back again as though it is a positive cash flow to get the final net cash flow.a. Trueb. False
A characteristic of the payback method is that it: (See your Chapter 25 notes, page 9) Uses accrual accounting inflows in the numerator of the calculation Uses the estimated expected useful life of the asset in the denominator of the calculation Incorporates cash flows received after the payback period has been reached Is based on accounting income Incorporates the time value of money Ignores total project profitability
1) When converting accounting profits to cash flows, we broadly deal with depreciation and working capital as follows: Depreciation Working capital A) add add at the start of the project,deduct at the end. B) deduct add at the start of the project,deduct at the end. C) add deduct at the start of the project,add at the end. D) deduct deduct at the start of the project,add at the end.
Is after-tax cashflow still the cash inflow even if it is the sum of NOPAT and depreciation in the project?
What name is given to the time value of money technique that discounts the after-tax cash flows for a project over its life to time period zero using the company’s minimum desired rate of return? a. net present value method b. capital rationing methodc. payback method d. average rate of return method e. accounting rate of return method
Discussion:Is the added precision from including taxes and depreciation in calculating project cash flows worth the effort? Should they be included in the calculations? Please discuss and justify your answer.
Which of the following would be considered a terminal cash flow? A. The expected salvage value of the asset B. Any tax payments or refunds associated with the salvage value of the asset C. Recapture of any investment in working capital that was included as an incremental cash outlay D. All of the above
which of the following should not be included in the cash flows for project analysis? Opportunity costs side effects or erosion sunk costs operating cash flows for all years The initial investment in net working capital
In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. True or False The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash outflows with the present value of its cash inflows. True or False The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the company's cost of capital. True or False An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project. True False The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero. True False The production budget is typically prepared before the direct materials budget. True False The selling and administrative budget is typically prepared…
Over the life of a project, a project’s accounting earnings equal to its net cash flows Group of answer choices a) True b) False
Which of the following best describes depreciation?A It is a means of spreading the payment for the asset over its total estimated lifeB It represents the decline in the market value of the assetC It is a means of spreading the cost of an asset over its estimated useful lifeD It is a way of estimating the cash needed to replace the asset in the future
Under the indirect method of estimating project cash flows, an increase in trade creditors in a given year as a result of a project would be treated in what way? Treated as a cash inflow Treated as a cash outflow Excluded from the cash flow analysis as this is a sunk cost Excluded from the cash flow analysis as no cash has been paid or received