Which of the following statements is FALSE? O A. When evaluating a capital budgeting decision, we generally include interest expense. O B. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. O C. Many projects use a resource that the company already owns. O D. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.

Which of the following statements is FALSE? O A. When evaluating a capital budgeting decision, we generally include interest expense. O B. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. O C. Many projects use a resource that the company already owns. O D. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.

Name: Which of the following statements is FALSE?A. When evaluating a capit
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Description: Which of the following statements is FALSE?A. When evaluating a capital budgeting decision, we generally include interest expense.B. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 2MCQ: To make a capital investment decision, a manager must a. estimate the quantity and timing of cash...

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Which of the following statements is false? A. Net incomes are not cash flows. Financial Managers should focus on the cash flows when making capital budgeting decisions. B. Incremental earnings are the amount by which the firm's earnings are expected to change as a result of the investment decision. C. To the extend that overhead costs are fixed and will be incurred in any case, they are not incremental to the project and should be excluded in the capital budgeting analysis. D. Depreciation is not a cash expense paid by the firm. E. None of the above.
Which one of these statements is correct? Accountants record sales and expenses after the related cash flows occur. The value of an investment depends on the size, timing, and risk of the investment's cash flows. Individuals tend to prefer later cash flows over current cash flows. When selecting one of two projects, managers should select the project with the higher total expected cash flow Most investors prefer greater risk over less risk.
Which of the following is NOT a major step in the capital budgeting process? a. generating investment project proposals b. analyzing the effect of a project on the firm's financial ratios c. performing a project post-audit and review d. estimating cash flows
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.
The duration of time within which the investment made for the project will be recovered by the net returns of the project is known as а. Accounting rate of return method b. Payback period С. Net present value method d. Period of return Capital budgeting is the process of evaluating and selecting short-term investments that are consistent with the firm's goal of maximizing owners' wealth. Select one: True False
As a financial manager and evaluating capital investments, one of the most difficult portions of the analysis is to predict the future cash flows. Please pick a capital investment of your choice and describe how you would develop the Free Cash Flows. Pay particular attention to describing if working capital should be included and incremental revenue/income.
Discuss the notions of conventional and nonconventional cash flows in capital budgeting. Which investment evaluation criteria would you use for unconventional cash flows and why? Provide a fictitious unconventional cash flow example and apply the payback period, NPV, IRR, MIRR, and PI methods to your example. Interpret the results.
Which of the following statements is true with regard to cash flows resulting from financing costs? a. They should be included in the cash flow calculations. b. Financing cash flows cannot include dividend payments to stockholders and interest payments to bondholders. c. Financing costs are captured in the original investment of a project’s cash flows. d. If cash outflows associated with financing costs were deducted from the cash flows for a project, it would be double-counting the financing costs of the investment.
Examine the following statements. (i) Payback period method measure the true profitability of a project. (ii) Capital Rationing and capital budgeting mean the same thing. (iii) Internal Rate of Return and Time Adjusted rate of Return are the same thing. (iv) Rate of Return takes into account the time value of money. A. (i), (ii) and (iii) are correct. B. (ii) and (iii) are correct. C. Only (iii) is correct. D. All (i), (ii), (iii) and (iv) are false
A. it is very A disadvantage of the average rate of return method of capital investment analysis is that complex to compute B. it does not include the entire amount of income earned over the life of a project C. it does not emphasize accounting income, which is often used by investors and creditors in evaluating management performance D. it does not directly consider the timing of the expected cash flows
Defining capital investments and the capital budgeting process Match each definition with its capital budgeting method. Methods 1. Accounting rate of return 2. Internal rate of return 3. Net present value 4. Payback Definitions a. Is only concerned with the time it takes to get cash outflows returned. b. Considers operating income but not the time value of money in its analyses. c. Compares the present value of cash outflows to the present value of cash inflows to determine investment worthiness. d. The true rate of return an investment earns.
Which of the statements below is TRUE regarding capital budgeting? O A. Capital budgeting deals with how much to apportion spending on current assets. O B. Projects with NPVS greater than the IRR should be accepted. OC. We can find a project's NPV by simply taking the product of all of the project's undiscounted cash flows. O D. Ceteris paribus, a lower cost of capital would increase a project's NPV.