The modified accelerated cost recovery system (MACRS) allows an increase:
In annual depreciation during earlier years
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What effect is expected at the end of the life of a project that initially required a $20,000 increase in net working capital?
The firm receives a $20,000 cash inflow
2 of 11
Why is debt financing said to include a tax shield for the company?
Taxable income is reduced by the amount of the interest
3 of 11
The term ‘capital structure’ refers to:
The manner in which a firm obtains its long-term sources of funding
4 of 11
Firms can alter their capital structure by:
Issuing stock to repay debt
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Your grandmother has promised to give you £5,000 when you graduate from university. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years
Decreases
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When mutually exclusive projects have different lives, the project that should be selected will have the:
Lowest equivalent annual cost
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A project's payback period is determined to be 4 years. If it is later discovered that additional cash flows will be generated in years 5 and 6, then:
The project's payback period will be unchanged
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Working capital will affect incremental cash flows if:
Net working capital changes from previous levels
9 of 11
A firm is considering expanding its current operations and has determined the internal rate of return on that expansion is 12.2%. The firm's WACC is 11.8%. Given this, you know the:
Expansion should be undertaken as it has a positive net present value
10 of 11
If the "life" of a potential investment is 5 years and its discounted payback is also 5 years, the investment's NPV is:
Zero
11 of 11
Other cards in this set
Card 2
Front
What effect is expected at the end of the life of a project that initially required a $20,000 increase in net working capital?
Back
The firm receives a $20,000 cash inflow
Card 3
Front
Why is debt financing said to include a tax shield for the company?
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