Which of the following should be included in the capital budgeting decision Sele

Question

Which of the following should be included in the capital budgeting decision Select one: A. Sunk costs B. Opportunity costs C. Relevant externalities D. #2 and #3 should be included E. All of the above should be included

Which of the following is NOT correct Select one: A. If an investment project would make use of land which the firm already owns, the opportunity cost of the land is a relevant cash flow and should be included with other project cash flows B. Analysis of capital projects focuses on cash flows rather than accounting income C. Changes in working capital do not need to be considered in capital project analysis D. All of the above are correct

Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends

A project has initial costs of $5,000 and subsequent cash inflows of $1800, 1275, 1875, and 1525.  The company's cost of capital is 10%. Calculate the Payback Period for the project Select one: A. 2.83 years B. 3.03 years C. 3.33 years D. 4.00 years Which of the following should be included in the capital budgeting decision Select one: A. Sunk costs B. Opportunity costs C. Relevant externalities D. #2 and #3 should be included E. All of the above should be included

Which of the following is NOT correct Select one: A. If an investment project would make use of land which the firm already owns, the opportunity cost of the land is a relevant cash flow and should be included with other project cash flows B. Analysis of capital projects focuses on cash flows rather than accounting income C. Changes in working capital do not need to be considered in capital project analysis D. All of the above are correct

Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends

A project has initial costs of $5,000 and subsequent cash inflows of $1800, 1275, 1875, and 1525.  The company's cost of capital is 10%. Calculate the Payback Period for the project Select one: A. 2.83 years B. 3.03 years C. 3.33 years D. 4.00 years Select one: A. Sunk costs B. Opportunity costs C. Relevant externalities D. #2 and #3 should be included E. All of the above should be included

Which of the following is NOT correct Select one: A. If an investment project would make use of land which the firm already owns, the opportunity cost of the land is a relevant cash flow and should be included with other project cash flows B. Analysis of capital projects focuses on cash flows rather than accounting income C. Changes in working capital do not need to be considered in capital project analysis D. All of the above are correct

Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends

A project has initial costs of $5,000 and subsequent cash inflows of $1800, 1275, 1875, and 1525.  The company's cost of capital is 10%. Calculate the Payback Period for the project Select one: A. 2.83 years B. 3.03 years C. 3.33 years D. 4.00 years A. Sunk costs B. Opportunity costs C. Relevant externalities D. #2 and #3 should be included E. All of the above should be included

Which of the following is NOT correct Select one: A. If an investment project would make use of land which the firm already owns, the opportunity cost of the land is a relevant cash flow and should be included with other project cash flows B. Analysis of capital projects focuses on cash flows rather than accounting income C. Changes in working capital do not need to be considered in capital project analysis D. All of the above are correct

Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends

A project has initial costs of $5,000 and subsequent cash inflows of $1800, 1275, 1875, and 1525.  The company's cost of capital is 10%. Calculate the Payback Period for the project Select one: A. 2.83 years B. 3.03 years C. 3.33 years D. 4.00 years Which of the following is NOT correct Select one: A. If an investment project would make use of land which the firm already owns, the opportunity cost of the land is a relevant cash flow and should be included with other project cash flows B. Analysis of capital projects focuses on cash flows rather than accounting income C. Changes in working capital do not need to be considered in capital project analysis D. All of the above are correct

Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends
Select one: A. If an investment project would make use of land which the firm already owns, the opportunity cost of the land is a relevant cash flow and should be included with other project cash flows B. Analysis of capital projects focuses on cash flows rather than accounting income C. Changes in working capital do not need to be considered in capital project analysis D. All of the above are correct

Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends
A. If an investment project would make use of land which the firm already owns, the opportunity cost of the land is a relevant cash flow and should be included with other project cash flows B. Analysis of capital projects focuses on cash flows rather than accounting income C. Changes in working capital do not need to be considered in capital project analysis D. All of the above are correct

Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends
Stock dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends Select one: A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends A. are similar to stock splits in that they do not change the fundamental position of current shareholders B. must be accompanied by cash dividends C. are viewed unfavorably by investors and thus should not be used D. have the same effect on financial statements as cash dividends A project has initial costs of $5,000 and subsequent cash inflows of $1800, 1275, 1875, and 1525.  The company's cost of capital is 10%. Calculate the Payback Period for the project Select one: A. 2.83 years B. 3.03 years C. 3.33 years D. 4.00 years Select one: A. 2.83 years B. 3.03 years C. 3.33 years D. 4.00 years A. 2.83 years B. 3.03 years C. 3.33 years D. 4.00 years

Explanation / Answer

For number 1, out of the three choices, sunk costs are the only ones that need not be considered. Sunk costs are those that HAVE ALREADY OCCURRED so they aren't going to be relevant when capital budgeting decisions are made. So the answer is D.

For number 2, opportunity costs ARE considered, and we DO focus on cash flows when analyzing budgeting decisions. BUT, changes in working capital DO need to be considered so the one that is not true is C.

Number 3 is a little tricky but basically, stock dividends move money from one stockholders' equity account (retained earnings) to another (contributed capital). So the overall affect on stockholders' equity is none. Stock splits are merely a splitting of each share without changing the overall value of stockholders' equity. If we had one share with a $10 par value and a 2 for 1 split occurred, we would now have 2 shares with a $5 par value for each (still $10 total par value).

Payback period is just asking "how many years is it going to take us to get our money back?". Well we need to get our total investment back of $5,000. Year 1, year 2, and year 3 cash flows all add up to $4,950. So we need AT LEAST 3 years. But then there's that extra 50 bucks we need back of our investment. We don't need the ENTIRE year 4 cash flow so we don't treat that as a full year. What we do is we take the fraction of what we still need (50) and divide it by what that year 4 cash flow is (1595). When we do we get 0.03 which means we only need 0.03 of a year from that 4th year. So our answer would be 3.03 total years that it will take us to get paid back.

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