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11 net initial investment includes a depreciation on new equipment cash outflow for 4301142

 

11) Net initial investment includes ________.

A) depreciation on new equipment, cash outflow for working capital, and after-tax cash inflow from disposal of the old equipment

B) cash outflow to purchase new equipment, depreciation on new equipment, and after-tax cash inflow from disposal of the old equipment

C) cash outflow to purchase new equipment, cash outflow for working capital, and after-tax cash inflow from disposal of the old equipment

D) cash outflow to purchase new equipment, cash outflow for working capital, and depreciation on new equipment

 

12) The income taxes saved as a result of depreciation deductions are irrelevant because they decrease cash outflows.

 

13) Tax deductions for depreciation result in tax savings that partially offset the cost of acquiring the capital asset.

14) The use of an accelerated method of depreciation for tax purposes would usually decrease the present value of the investment.

 

15) Net initial investment in the project includes the acquisition of assets and any associated additions to working capital, minus the after-tax cash flow from the disposal of existing assets.

 

16) Relevant cash flows are expected future cash flows that differ among the alternative uses of investment funds.

 

17) Deducting depreciation from operating cash flows would result in counting the initial investment twice in a discounted cash flow analysis.

 

18) In determining whether to keep a machine or replace it, the original cost of the machine is a sunk cost and is NOT a relevant factor.

 

19) In the net present value (NPV) method, pre-tax cash flows should be used instead of after-tax cash flows when taxes are a consideration.

 

20) In calculating the net initial investment cash flows, any increase in working capital required for the project should be included.

 

 

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