Google Inc

Terms: capital budgeting

Objective: 5

AACSB: Analytical skills

21) Deducting depreciation from operating cash flows would result in counting the initial investment

twice in a discounted cash flow analysis.

Answer: TRUE

Diff: 2

Terms: discounted cash flow (DCF) methods

Objective: 5

AACSB: Analytical skills

22) 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.

Answer: TRUE

Explanation: 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.

Diff: 2

Terms: capital budgeting

Objective: 5

AACSB: Analytical skills

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23) 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.

Answer: FALSE

Explanation: In the net present value (NPV) method, after-tax cash flows should be used instead of pretax

cash flows when taxes are a consideration.

Diff: 2

Terms: capital budgeting

Objective: 5

AACSB: Reflective thinking

24) In calculating the net initial investment cash flows, any increase in working capital required for the

project should be included.

Answer: TRUE

Diff: 2

Terms: capital budgeting

Objective: 5

AACSB: Analytical skills

25) Cash received from the disposal of old equipment is NOT relevant to a decision to buy a

replacement.

Answer: FALSE

Explanation: Cash received from the disposal of old equipment is relevant to a decision to buy a

replacement.

Diff: 2

Terms: capital budgeting

Objective: 5

AACSB: Ethical reasoning

26) A increase in the tax rate will increase the net present value (NPV) for a given capital budgeting

project.

Answer: FALSE

Explanation: A increase in the tax rate will decrease the net present value (NPV) for a given capital

budgeting project.

Diff: 2

Terms: capital budgeting

Objective: 5

AACSB: Analytical skills

27) It is...