The CFO of Cicero Industries Plans to Calculate a New

question 74

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:

Emotional Expression

The outward display or communication of emotions through facial expressions, body language, and voice.

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Repetitive behaviors performed according to certain rules or in a stereotyped fashion, often as a response to obsessive thoughts.

Catatonia

A psychiatric syndrome characterized by a lack of movement, activity, or expression, which can occur in severe mental health conditions.

Senseless, Immobility

An inability to move or respond, often resulting from shock or extreme confusion.