The internal rate of return (IRR) method of evaluating projects equates the present value of cash inflows with the present value of cash outflows by discounting all of the flows at the firm's cost of capital. A] True B] False Since the focus of capital budgeting is on cash flows rather than on net income, changes in non-cash, short-term accounts such as inventory are relevant in the analysis. a. True b. False Depreciation is a source of cash inflow because A. it is a tax-deductible noncash expense. B. it supplies cash for future asset purchases. C. it is a tax-deductible cash expense. D. it is a taxable expense. An item which may be converted to cash within one year or one operating cycle of the firm is classified as a A. current liability B. long-term asset. C. current asset. D. long-term liability Regardless of the size of the coupon payment, the price of a bond moves in the opposite direction from interest rate movements. For example, if interest rates rise, bond prices fall. a. True b. False As a bond approaches maturity, the price of the bond will approach its par value until, the bond is worth its face value at maturity. a. TRUE b. FALSE Sunk costs are outlays that have already been made and therefore have no effect on the cash flows relevant to the current decision. a. TRUE b. FALSE