Explain how to compute an operating cash flow (OCF) from a modified income statement. What will be an ideal response? ANSWER Answer: We first compute EBIT, which is Revenues – Costs of Goods Sold – General Selling and Administrative Expenses – Depreciation. We then subtract Taxes to get Modified Net Income. Next, add […]
Explain the distinction between profits and cash flow. What will be an ideal response? ANSWER Answer: Profits are an accounting measure of performance during a specific period of time. Cash flow is the actual inflow or outflow of money. Although you cannot spend “profit,” you can spend cash. This is because profit given […]
In terms of revenues and costs for a project, which of the statements below is FALSE? A) Projected revenues and costs are estimates of future activity. B) Estimates of revenues and costs begin with operating cash flow of the project. C) Projected revenues and costs form the basis of the potential for a project’s acceptance […]
The projected revenues and costs that form the basis of the potential for a project’s acceptance or rejection are estimates of ________. A) future activity B) past activity C) known activity D) current activity ANSWER Answer: A
Managers typically look at the initial outlay for the project as its capital expenditure and determine ________ from this capital expenditure. A) interest expenses B) dividends C) depreciation D) CEO expenses ANSWER Answer: C
In general, non-U.S. companies have much higher debt ratios than their U.S. counterparts because financial markets are much more developed in the United States than elsewhere. Indicate whether the statement is true or false ANSWER TRUE
All of the following were mentioned in the text as means by which the manager of a firm may decrease the his or her personal exposure to the firm’s risk (on a self-serving basis) EXCEPT: a. excessive corporate diversification b. bias toward investments with near-term payoffs c. securing his or her lifetime compensation with a […]
________ involve(s) a cash flow that never occurs, but we need to add it as a cost or outflow of a new project. A) Cost recovery of divested assets B) Capital expenditures C) Sunk costs D) Opportunity costs ANSWER Answer: D
________ cash flow is the increase in cash generated by a new project above the current cash flow without the new project. A) Future B) Current C) Discounted D) Incremental ANSWER Answer: D
________ of a project are those that have already been incurred and cannot be reversed. A) Erosion costs B) Opportunity costs C) Sunk costs D) Working capital costs ANSWER Answer: C
