Some of the Factors (With Selected Explanations) Used in Calculating

question 15

Multiple Choice

Some of the factors (with selected explanations) used in calculating the basic "net present value" and the "incremental" cash flows of a capital project are:
(i) - expected after-tax terminal value, including recapture of working capital.
(ii) - net income, which belongs to the equity holders of the firm.
(iii) - initial investment at inception.
(iv) - depreciation, and the fact that depreciation is a noncash expense. (i.e. it is removed from the calculation of net income, for tax purposes, but added back because it did not actually flow out of the firm)
(v) - weighted-average cost of capital.
(vi) - the firm's after-tax payment of interest to debt holders.
(vii) - economic life of the capital project in years.
-The "incremental" cash flows of a capital project are calculated by using:

• A) (i), (ii), and (iii).
• B) (ii), (iv), and (vi).
• C) (i), (iii), (v), and (vii).
• D) (iv), (v), (vi), and (vii).

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Definitions:

Market Situations

Scenarios or conditions prevailing in a market that influence the behavior of market participants, including competitiveness, demand, and supply dynamics.

Tax Burden

The measurement of taxes paid by an individual or business, often expressed as a percentage of income or as the total amount of taxes paid.

Buyers

Individuals or entities that purchase goods or services in a market.

Sellers

Sellers are individuals or entities that offer goods or services in exchange for payment, playing a central role in market economies.