A Company Is Considering a New Project

question 37

Multiple Choice

A 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 flows) ,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 additional investment in net operating 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.

Associate the allocation of joint costs to products using the value basis method.

Understand the application of performance measurement systems in assessing department or division performance.

Understand the principles of cost allocations to products and departments.

Comprehend the basis and methods for allocating indirect costs.

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Definitions:

Terminate

The action of ending or stopping a process, program, or operation in computing.

Break

A statement used to exit from a loop or switch statement before it has finished executing.

Defensive Programming

A programming approach aimed at reducing bugs and problems by anticipating potential issues and systematically handling them throughout the code.

Improper Data

Refers to data that is incorrect, inappropriate, or not in the expected format, potentially leading to errors or issues within an application or system.