1 Incremental cash flows from a project = A Firm cash flows with the project plus firm cash flows without the project. B Firm cash flows without the project plus or minus changes in revenue with the project. C Firm cash flows with the project minus firm cash flows without the project. D Firm cash flows without the project plus or minus changes in net income. 2 Relevant incremental cash flows include: A incremental sales brought to the firm as a whole. B sales captured from the firm's competitors. C retained sales that would have been lost to new competing products. D all of the above. 3 Which of the following would be considered a termination cash flow? A Any tax payments or refunds associated with the salvage value of the asset B Recapture of any investment in working capital that was included as an incremental cash outlay C The expected salvage value of the asset D All of the above 4 Diamond Inc. has estimated that a new building will cost $2,500,000 to construct. Land was purchased a year ago for $500,000 and could be sold today for $550,000. An environmental impact study required by the state was performed at a cost of $48,000. For capital budgeting purposes, what is the relevant cost of the new building? A $3,050,000 B $3,048,000 C $2,500,000 D $3,098,000 5 If depreciation expense is taken over 5 years rather than 3 years, all things equal, A depreciation has no effect on net present value. B net present value will go down. C net present value will go up. D the answer depends on the company's marginal tax rate. 6 Greenspan Inc. discounts cash flows at a nominal rate of 10%. Inflation over the next few years is expected to average 3%. Which of the following would be a correct adjustment for inflation when computing net present value? A Discount cash flows at 10%; increase revenues and expenses by 3% each year. B Discount cash flows at 13%; increase revenues and expenses by 3% each year. C Discount cash flows at 7%; ignore inflation when forecasting revenues and expenses. (laoshishuode) D Either A or C would be acceptable