The CFO of Cicero Industries Plans to Calculate a New

question 10

Multiple Choice

The CFO of Cicero Industries plans to calculate a new 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.

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Definitions:

Muscle Tension

The force generated by the contraction of muscles, important in movement, maintenance of posture, and the production of body heat.

Contraction

The process of a muscle becoming shorter and tighter, usually in response to a nerve impulse.

Isometric Contraction

Muscle contraction in which the length of the muscle does not change but the tension produced increases.

Action Potential

A temporary reversal of the electrical potential across the membrane of a nerve cell (neuron) that occurs when the cell generates a nerve impulse.