When a Company Is Analyzing a Capital Project by a Discounted-Cash-Flow

question 42

Multiple Choice

When a company is analyzing a capital project by a discounted-cash-flow approach and income taxes are being considered, depreciation:

• A) should be ignored.
• B) should be considered because it results in a tax savings.
• C) should be considered because it is a fixed cost.
• D) should be considered because it is a cash inflow.
• E) should be considered because, like other expenses, it is a cash outlay related to operations.

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Definitions:

Individual Capacity

Acting on one’s own behalf, involving personal rights or responsibilities, rather than on behalf of a group or a corporate entity.

Liability

The state of being legally responsible for something, typically a debt or obligation.

Note

A financial instrument recognizing a debt or obligation, typically with the promise to repay the principal along with potential interest.

Revised Article 3

An update to a section of the Uniform Commercial Code that deals with negotiable instruments, including changes to laws governing checks and promissory notes.