Company Is Considering a New Project

question 12

Multiple Choice

company is considering a new project.The CFO plans to calculate the project's NPV by estimating the relevant cash flows for each year of the project's life (i.e., the initial investment cost, the annual operating cash flows, and the terminal cash flow) , then discounting those cash flows at the company's overall WACC.Which one of the following factors should the CFO be sure to INCLUDE in the cash flows when estimating the relevant cash flows?

• A)All sunk costs that have been incurred relating to the project.
• B)All interest expenses on debt used to help finance the project.
• C)The investment in working capital required to operate the project, even if that investment will be recovered at the end of the project's life.
• D)Sunk costs that have been incurred relating to the project, but only if those costs were incurred prior to the current year.
• E)Effects of the project on other divisions of the firm, but only if those effects lower the project's own direct cash flows.

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Definitions:

Intromission

The act of introducing or inserting one thing into another, often used in the context of optical theories or sexual intercourse.

Attractivity

The characteristic or degree of being appealing or pleasing to others, often used in the context of sexual or physical appeal.

Thrusting

A forceful, pushing or driving action often referring to physical movements in various contexts.

Limbic System

A complex system of nerves and networks in the brain, involving several areas near the edge of the cortex concerned with instinct and mood. It controls the basic emotions and drives.