QUESTION 30

Which of the following is true about the Net Present Value method?

The NPV does not utilize time value of money concepts.

The NPV assumes that all cash flows are reinvested at the firms discount rate.

The NPV allows projects to be ranked by rate of return.

The NPV is a rate of return that is acceptable to the firm.

QUESTION 36

In order to calculate free cash flow by starting with incremental cash flow from operations, we should

		subtract the incremental capital expenditures and add the incremental additions to working capital.
		add the incremental capital expenditures and the incremental additions to working capital.
		subtract the incremental capital expenditures and the incremental additions to working capital.
		None of the above.

4 points

QUESTION 37

Whenever a project has a negative impact on an existing project's cash flows, then that effect should:

		be ignored.
		be ignored if the project is evaluated using the correct cost of capital.
		be included as a negative revenue amount on the new project's cash flow analysis.
		be included if the impact is limited to noncash expenditures.

4 points

QUESTION 38

Another name for EBITDA is:

		pretax operating cash flow.
		accounting operating cash flow.
		net income before tax.
		net income after tax.

4 points

QUESTION 39

If a firm is about to operate in an environment in which there will be a great deal of variability in the level of revenues, then the firm:

		should structure its cost structure to have high fixed costs and higher total variable costs.
		should structure its cost structure to have high fixed costs and consequently lower per unit variable costs.
		should structure its cost structure to have low fixed costs and consequently higher per unit variable costs.
		should leave the cost structure unchanged.

4 points

QUESTION 40

The degree of pretax cash flow operating leverage provides us with:

		a measure of how sensitive pretax operating cash flows are to changes in revenue.
		a measure of how sensitive accounting operating profits are to changes in revenue.
		a measure of how sensitive NOPAT is to changes in tax rates.
		a measure of how sensitive accounting operating profits are to changes in tax rates.