Your university is considering what to do with the current football stadium. They plan to invest to upgrade the current football stadium or invest to build a new one closer to campus. What kind of projects are these?
A) contingent projects
B) mutually exclusive projects
C) independent projects
D) none of the above
The estimation of a project's net cash flows (NCF) should not include changes in
A) depreciation.
B) cash operating costs.
C) interest expense.
D) sales revenue.
Higher depreciation results in lower profit and higher net cash flow.
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If a depreciable asset is sold for less than its book value, then taxes must be paid on the difference.
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A project's net cash flows are typically cash inflows whereas a project's net investment is typically a cash outflow.
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The after-tax salvage value from replaced assets will decrease the net investment.
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Growth oriented capital budgeting projects typically do not require an increase in net working capital.
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A capital budgeting project's sunk costs and opportunity costs are both relevant to the project investment decision.
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Indirect cash flows caused by a capital budgeting project are not relevant to the project investment decision.
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When making a capital budgeting decision, cash flows should be estimated on an incremental basis, not a total basis.
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