lar amount of losses incurred when an old asset is sold below book value is added to purchase price of a new asset in calculating the base for depreciation. a. True b. False 9. The reason cash flow is used in capital budgeting is because A. cash rather than income is used to purchase new machines. B. cash outlays need to be evaluated in terms of the present value of the resultant csh inflows. C. to ignore the tax shield provided from depreciation would ignore the cash flow provide by the machine, which should be reinvested to replace older machines D. All of these options are true 10. If an investment project has a positive net present value, then the internal rate of return is A. less than the cost of capital. B. greater than the cost of capital. C. equal to the cost of capital. D. indeterminate, because it depends on the length of the project 11. There are several disadvantages to the payback method, among them: Payback ignores the interest that is earned during the period of time the project is in place. Payback emphasizes receiving money back as fast as possible for reinvestment. C. Payback is basic to use and understand. D. Paybock can be used in conjunction with time-adjusted methods of evaluation. 12. Capital budgeting is primarily concerned with capital formation in the economy planning future financing needs. evaluating investment alternatives D. minimizing the cost of capital. 3 Assume a project has earnings before depreciation and taxes of S15,000, depreciation of and that the firm has a 30% tax bracket, what are the after-tax cash flows for the project? A. A positive $18,000 B. A positive $19,000 C. A loss of $21,000 D. A positive $28,000