1. The most difficult part of the capital budgeting process is:

interpreting the results of the application of NPV or IRR.

application of evaluation techniques such as NPV or IRR.

estimation of the incremental project cash flows.

None of these choices are correct.

2. To evaluate a proposed capital project effectively, it is important to understand the fundamental concept of incremental cash flows. Incremental cash flows can be viewed as cash flows:

separate from the company's normal business.

occurring only if the project is undertaken.

in addition to the company's normal business.

All of these choices are correct.

3. Holding all other variables constant, an increase in the cost of equipment at the beginning of the project would affect which of the following?

Initial Outlay

Opportunity costs

Incremental cash flows

Both "Initial Outlay" & "Incremental cash flows"

4. Certain expenditures associated with a project should not be included in capital budgeting cash flows. Such expenditures, referred to as sunk costs, might include:

a costly market study previously undertaken to determine the viability of the project.

the cost of an existing resource that will no longer be available for other uses.

Both "the cost of an existing resource that will no longer be available for other uses" and "a costly market study previously undertaken to determine the viability of the project".

Neither "the cost of an existing resource that will no longer be available for other uses" nor "a costly market study previously undertaken to determine the viability of the project".