1)The estimated benefits from a project are expressed as cash flows instead of income flows because:

Response: this is required by the Securities and Exchange Commission.

a)This required by the internal Revenue service

b)It is cash,not accounting income ,that is the central to the firm's capital budgeting decision

c)It is simpler to calculate cash flows than income flow

2.Taxing authorities allow the fully installed cost of an asset to be written off for tax purposes. This amount is called the asset's

a)Initial cash outlay

b)cost of capital

c)depreciable basis

d

3.A profitability index (PI) of .92 for a project means that __________.

a)the project returns 92 cents in present value for each current dollar invested(cost)

b)the project NPV is greater than zero

c)the project costs(cash outlay) are (is) less than the present value of the project benefits

4.All of the following influence capital budgeting cash flows EXCEPT:

a)method of project financing used

b)accelerated depreciation

c)tax rate change

5.Which of the following statements is incorrect regarding a normal project

a)If the NPV is greater than 0,then its PIwill exceed 1

b)If the PI of a project equals 0, then the project's intial cash outflow equals the PV of its cash