If the Capital Budgeting Decision Includes a Replacement Analysis, Then

question 72

Multiple Choice

If the capital budgeting decision includes a replacement analysis, then

• A) a gain from the sale of the old asset will represent a tax savings inflow.
• B) only incremental cash flows should be looked at.
• C) the sale price and tax savings will increase the cash inflows throughout the asset's life.
• D) two of the above.

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Definitions:

Excess Reserves

The capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors, or internal controls.

Actual Reserves

The total amount of funds that a bank has on deposit at the Federal Reserve, plus any cash physically held by the bank.

Reserve Requirement

A regulation set by central banks requiring commercial banks to hold a certain proportion of their deposits as reserves.

Government Bonds

Debt securities issued by a government to finance its expenditures, often considered a safe investment.