b Estimating project cash (dows is generally the most important, but also the most difficult, step e Since the focus of capital budgeting is on cash flows rather than on net income, changes in noncash balance sheet accounts such as inventory are included in a capital budgeting Capital" is sometimes defined as funds supplied to a firm by investors a proposed project with the following data. What is the Year 1 cash flow differ in risk, then one way of handling this problem is to evaluate each the appropriate risk-adjusted discount rate e. 13. As a member of UA Corporation's financial staff, you must estimate the Year 1 cash flow for Sales revenues, each year Depreciation Other operating costs $42,500 $10,000 $17,000 $4,000 35.0% Tax rate a. $16.351 b. $17.212 c. $18, 118 d. $19,071 e My calculation is: 14. A firm is considering a new project whose risk is greater than the risk of the firm's average reasonable for management to do which of the following? a. Increase the estimated IRR of the project to reflect its greater risk b. Increase the estimated NPV of the project to reflect its greater risk c. Reject the project, since its acceptance would increase the firm's risk d. Ignore the risk differential if the project would amount to only a small fraction of the firm's e. Increase the cost of capital used to evaluate the project to reflect its higher-than-average risk. total assets. 15. It is extremely difficult to estimate the revenues and costs associated with large, complex projects that take several years to develop. This is why strategic reasoning is often used for such projects along with discounted cash flow analysis. a. True b. False A firm's capital structure does not affect its free cash flows because FCF reflects only operating cash flows, which are available to service debt, to pay dividends to stockholders, 16. and for other purposes. a. True b. False 17. Different borrowers have different risks of bankruptcy. Therefore, lenders charge different rates to borrowers based on the default or credit risk. a. True b. False 18. Business risk is affected by a firm's operations. Which of the following is NOT directly associated with (or does not directly contribute to) business risk? a. Demand variability. b. Sales price variability c. The extent to which operating costs are fixed. d. The extent to which interest rates on the firm's debt fluctuate. e. Input price variability