Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 6, Problem 8CQ
Summary Introduction
To evaluate: Whether
Incremental Cash Flow:
Incremental cash flow means increase in the cash flow of a company from investment in new project. It means the addition in the cash flow that will generate from the future project.
Depreciation:
Depreciation is a non cash expense. Depreciation means the value of assets is going to reduce day by day due to use of that asset, the new assets of new technology come into force and due to tear and wear.
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Students have asked these similar questions
“When evaluating projects, we’re concerned with only the relevant incremental after-tax cash flows. Therefore, because depreciation is a non-cash expense, we should ignore its effects when evaluating projects.” Critically evaluate this statement.
Explain why depreciation should not be included as a cost in a discounted cash flow (DCF)
analysis of a project.
Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project?
a.
Shipping and installation costs.
b.
Cannibalization effects.
c.
Opportunity costs.
d.
Sunk costs that have been expensed for tax purposes.
e.
Changes in net working capital.
Please explain your answer for better understanding.
Chapter 6 Solutions
Corporate Finance
Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQCh. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQCh. 6 - Prob. 6CQCh. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQCh. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...
Ch. 6 - Prob. 11CQCh. 6 - To answer the next three questions, refer to the...Ch. 6 - Prob. 1QAPCh. 6 - Prob. 2QAPCh. 6 - Calculating Project NPV Down Under Boomerang,...Ch. 6 - Calculating Project Cash Flow from Assets In the...Ch. 6 - Prob. 5QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 7QAPCh. 6 - Prob. 8QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Calculating Salvage Value An asset used in a...Ch. 6 - Calculating NPV Thurston Petroleum is considering...Ch. 6 - Prob. 12QAPCh. 6 - Cost-Cutting Proposals Starset Machine Shop is...Ch. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 15QAPCh. 6 - Prob. 16QAPCh. 6 - NPV and Bonus Depreciation Eggz, Inc., is...Ch. 6 - Prob. 18QAPCh. 6 - Prob. 19QAPCh. 6 - Prob. 20QAPCh. 6 - Prob. 21QAPCh. 6 - Prob. 22QAPCh. 6 - Prob. 23QAPCh. 6 - Prob. 24QAPCh. 6 - Prob. 25QAPCh. 6 - Prob. 26QAPCh. 6 - Prob. 27QAPCh. 6 - Prob. 28QAPCh. 6 - Prob. 29QAPCh. 6 - Prob. 30QAPCh. 6 - Prob. 31QAPCh. 6 - Prob. 32QAPCh. 6 - Prob. 33QAPCh. 6 - Prob. 34QAPCh. 6 - Prob. 35QAPCh. 6 - Prob. 36QAPCh. 6 - Prob. 37QAPCh. 6 - Prob. 38QAPCh. 6 - Prob. 39QAPCh. 6 - Prob. 40QAPCh. 6 - Prob. 41QAPCh. 6 - Prob. 42QAPCh. 6 - Prob. 1MCCh. 6 - GOODWEEK TIRES, INC. After extensive research and...
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Similar questions
- Why do we need to predict how certain costs will behave in response to change activity in project cash-flow analysis?arrow_forwardWhich of the following is a disadvantage of the IRR project evaluation method? Select one: a. It does not take into account the time value of money. b. If there are negative cash flows after positive cash flows, there may be zero or multiple internal rates of return. c. It does not make adequate allowance for risk. d. It focuses on accounting profit rather than cash flow as the source of value.arrow_forwardWhat are the best functions to use when evaluating projects with uneven cashflows?arrow_forward
- Which of the following is an advantage of using the payback period method for project selection? The payback period method considers the time value of money The payback period method considers accounting income The payback period method shows when funds will be available for reinvestment The payback period method ignores the time value of moneyarrow_forwardWhich of the following statements is correct regarding the payback method? Takes account of differences in size among projects. If a project’s payback is positive, then the project should be accepted because it must have a zero NPV. Ignores cash flows beyond the payback period. Has an objective, market-determined benchmark for making decisions. Directly account for the time value of money.arrow_forwardThe use of natural resources in an economic activity involves setting up a project forharvesting (i.e. extracting) these resources. For the project to be viable, both economic andfinancial indicators - such as net present value (NPV) and internal rate of return (IRR)considering time value of money - are employed. a) Briefly explain the concept of "time value of money". b) Moreover, explain how you will use NPV and IRR to determine the viability of a project.arrow_forward
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