The Present Value of the Expected Net Cash Inflows for a Project

question 42

Multiple Choice

The present value of the expected net cash inflows for a project will most likely exceed the present value of the expected net profit after tax for the same project because

• A) Income is reduced by taxes paid, but cash flow is not.
• B) There is a greater probability of realising the projected cash flow than the forecasted income.
• C) Income is reduced by dividends paid, but cash flow is not.
• D) Income is reduced by depreciation charges, but cash flow is not.
• E) Cash flow reflects any change in net working capital, but sales do not.

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Definitions:

Empirical

Based on observation or experience rather than theory or pure logic.

Type II Error

In research, the mistake of thinking that one variable does not have an effect on or relationship with another, when really it does.

Empirical Method

A way of gaining knowledge by means of direct and indirect observation or experience.

Type I Error

In research, the mistake of thinking that one variable has an effect on, or relationship with, another variable, when really it does not.