Which one of the following is an example of a sunk cost?

Multiple Choice

• $2,000 paid last year to rent equipment

• $2,000 in lost sales because an item was out of stock

• $2,000 increase in comic book sales if a store ceases selling puzzles

• $2,000 reduction in Product A revenue if a firm commences selling Product B

• $2,000 project that must be forfeited if another project is accepted

• Watson Landscaping is considering a project that will require additional inventory of $12,000 and will increase accounts payable by $19,000. Accounts receivable is currently $302,000 and is expected to increase by 5 percent if this project is accepted. What is the project's initial cash flow for net working capital?

  Multiple Choice

• $31,000

• $15,900

• $22,100

• $46,900

• $8,100

• All of the following cash flows are related to a proposed project. Which one of these should be included in the cash flow at Time 0?

  Multiple Choice

• Net working capital recovery

• Aftertax salvage value of the new assets

• Initial investment in inventory to support the project

• Annual depreciation tax shield

• Loan obtained to finance the project

• Which one of the following is a project cash inflow? Ignore any tax effects.

  Multiple Choice

• Increase in accounts receivable

• Equipment acquisition

• Decrease in inventory

• Depreciation expense

• Decrease in accounts payable

• Assume interest expense is equal to zero. Which one of the following is a correct method for computing the operating cash flow of a project?

  Multiple Choice

• (Sales Costs)(1 Depreciation)(1 Taxes)

• (Sales Costs)(1 Taxes)

• Net income + Depreciation

• EBIT(1 + Taxes)

• EBIT + Depreciation