The owner of a small construction business has asked you to evaluate the purchas
ID: 2771524 • Letter: T
Question
The owner of a small construction business has asked you to evaluate the purchase of a new
front end loader. You have determined that this investment has a large, positive, NPV, but are
afraid that your client will not understand the method. A good alternative method in this
circumstance might be
A) the payback method
B) the profitability index
C) the internal rate of return
D) the modified internal rate of return
) Which of the following cash flows should be included as incremental costs when evaluating
capital projects?
A) Investment in working capital that is directly related to a project
B) Expenses that are incurred in order to modify a firm's production facility in order to invest in
a project
C) Overhead expenses that are directly related to a project
D) Opportunity costs that are directly related to a project
E) All of the above
Which of the following would be considered a termination cash flow?
A) The expected salvage value of the asset
B) Any tax payments or refunds associated with the salvage value of the asset
C) Recapture of any investment in working capital that was included as an incremental cash
outlay
D) All of the above
Explanation / Answer
The owner of a small construction business has asked you to evaluate the purchase of a new
front end loader. You have determined that this investment has a large, positive, NPV, but are
afraid that your client will not understand the method. A good alternative method in this
circumstance might be
A) the payback method as it gives a picture of how much time is needed to recoup the initial investment outlay. It is easy to comprehend because it doesnot consider any cash flow discounting.
Which of the following cash flows should be included as incremental costs when evaluating
capital projects?
Investment in working capital that is directly related to a project Expenses that are incurred in order to modify a firm's production facility in order to invest in a project Overhead expenses that are directly related to a project Opportunity costs that are directly related to a project
E) All of the above
Which of the following would be considered a termination cash flow?
The expected salvage value of the asset Any tax payments or refunds associated with the salvage value of the asset Recapture of any investment in working capital that was included as an incremental cashoutlay
D) All of the above
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