A Company Is Considering a New Project

question 6

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 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.

---

Definitions:

Meiosis

Meiosis, which occurs only in eukaryotes, is a form of cell division that cuts the number of chromosomes in half.

Sister Chromatids

Identical copies of a chromosome, created during the S phase of cell division, that are connected by a centromere.

Genome Size

The total amount of DNA contained within one copy of a single genome, measured in base pairs or number of genes.

Mobile Genetic Elements

Sequences of DNA that can move or replicate within a genome, playing a role in mutation, gene transfer, and evolution.