1. The depreciation is best defined as the: a) amount of tax that is saved when

Question

1. The depreciation is best defined as the:

a) amount of tax that is saved when an asset is purchased.

b) allocation of the cost of the asset over its useful life.

c) amount of tax that is due when an asset is sold.

d) amount by which depreciation expense lowers net income.

2. A university converted the bottom 3 floors of an apartment building they own to classrooms. The option that is forgone so that the university can utilize it for classroom is:

a) Salvage value

b) Sunk cost

c) Opportunity cost

d) Erosion

3. When a firm is evaluating the introduction of a new product, it should consider the impact of the product on:

a) the financing costs required to bring the product to market

b) the firms additional overhead required during the production process

c) competing products the firm produces

d) the firm

Explanation / Answer

1. b) Sunk

2. D). Opportunity cost

3. b) the cash flows of a new project that come at the expense of a firm's existing cash flows

4. b) allocation of the cost of the asset over its useful life.

5. d) losing sales due to bad weather

6. d) II, III, and IV only

7. e) Depreciation expense

8. c) competing products the firm produces

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