Which of the Following Items Has No After-Tax Consequences in the Analysis

question 93

Multiple Choice

Which of the following items has no after-tax consequences in the analysis of a capital investment proposal?

• A) Cash flow from operations.
• B) Salvage value of an existing asset that would be sold.
• C) Employee severance compensation.
• D) Reduction of net working capital at the termination (expiration) of the proposed project.
• E) Gain or loss on the disposal of the investment at the end of its useful life.

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Definitions:

Operating Leverage

An indicator of the extent to which increases in revenue lead to increases in operating profit, showing the level of fixed expenses within the financial framework of a business.

Fixed Costs

Expenses that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.

Forecasting Risk

The potential for future revenues or earnings to deviate from projected amounts due to variables that affect demand, supply, and pricing.

NPV Estimates

Calculations used to determine the Net Present Value of an investment, forecasting the difference between the present value of cash inflows and outflows.