2 questions \"11 Verizon? 3:51 PM 34% . Done 6 of 6 Module 5: Exam 5 Material-S
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2 questions"11 Verizon? 3:51 PM 34% . Done 6 of 6 Module 5: Exam 5 Material-S Take Test: tam 5-SU18.FI. × × C Secure https://lutclearn.blackboard.com/webapps/assessment/take/launch.jsp? QUESTION 29 500000 points Save Answer The stand-alone principle allows us to analyze each project in isolation from the firm simply by focusing on incremental cash flows. Which of the following cash flows are not relevant for our analysis of a new project? Financing costs Opportunity costs Taxes Erosion or side effects Net working capital QUESTION 30 5.00000 points Save Answer Will Smith once turned down the role to play Neo in "The Matrix. The part went to Keanu Reeves. Wil Smith instead chose to star as a cowboy in the blockbuster failure "The wild Wild West. Kevin Costner also once turned down the role to play Andy Dufresne in "Shawshank Redemption." The part went to Tim Robbins. Kevin Costner instead chose to star as the Mariner in the blockbuster failure "Waterworld. Based on the information above, what is one of the most relevant costs both Will Smith and Kevin Costner should consider when evaluating future movie projects? Sunk costs Opportunity costs Changes in net workitg capital Taxes Click Sqve and Submit to save and submit. Click Save All Anspers to save all answers 4 ]
Explanation / Answer
Q 29:
For any project evaluation, free cash flow of the project is calculated using the following formula:
Free Cash Flow = Operating Cash Flow - Capex - Change in working capital
Operating Cash Flow = EBIT*(1-T)+Depreciation
Free cash flow is affected by opportunity cost, taxes, erosion or side effects and net-working capital.
Finance costs do not affect the free cash flow of the project and hence are not relevant costs during the project evaluation.
Thus financing cost i.e. the first option is correct.
Q30
Opportunity cost is the benefits other movies which actors are not able to choose because of the movie they selected.
Thus evaluating the opportunity cost of selecting a particular movie will help actors making the right decision.
Thus opportunity cost i.e. the second option is correct.
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