Chapter 10 Making Capital Investment Decisions Answer Key
Multiple Choice Questions
1.
The fact that a proposed project is analyzed based on the project's
incremental cash flows is the assumption behind which one of the
following principles?
A
u
.n
d
er
lyi
n
g
v
al
u
e
pr
in
ci
pl
e
B
st
.a
n
dal
o
n
e
pr
in
ci
pl
e
C
e
.q
ui
v
al
e
nt
c
os
t
pr
in
ci
pl
e
D
s
.al
v
a
g
e
pr
in
ci
pl
e
Efu
.n
d
a
m
e
nt
al
pr
in
ci
pl
e
Refer to section 10.1
2.
Which one of the following costs was incurred in the past and cannot
be recouped?
Ain
.cr
e
m
e
nt
al
Bs
.i
d
e
Cs
.u
n
k
D
o
.p
p
o
rt
u
ni
ty
Ee
.r
o
si
o
n
Refer to section 10.2
3.
Which one of the following best describes the concept of erosion?
A
ex
.p
e
ns
es
th
at
h
av
e
al
re
a
dy
b
ee
n
in
cu
rr
e
d
a
n
d
ca
n
n
ot
b
e
re
co
ve
re
d
B
ch
.a
n
g
e
in
n
et
w
or
ki
n
g
ca
pi
ta
l
re
la
te
d
to
i
m
pl
e
m
e
nt
in
g
a
n
e
w
pr
oj
ec
t
C
th
.e
ca
sh
fl
o
w
s
of
a
n
e
w
pr
oj
ec
t
th
at
co
m
e
at
th
e
ex
p
e
ns
e
of
a
fir
m
's
ex
ist
in
g
ca
sh
fl
o
w
s
D
th
.e
al
te
rn
at
iv
e
th
at
is
fo
rf
ei
te
d
w
h
e
n
a
fix
e
d
as
se
t
is
ut
ili
ze
d
by
a
pr
oj
ec
t
E
th
.e
di
f
er
e
4.
Which one of the following is the depreciation method which allows
accelerated write-ofs of property under various lifetime
classifications?
AI
.R
R
BA
.C
R
S
CA
.A
R
D
st
.ra
ig
ht
li
n
e
to
z
er
o
Est
.ra
ig
ht
li
n
e
wi
th
sa
lv
a
g
e
Refer to section 10.4
5.
The stand-alone principle advocates that project analysis should be
based solely on which one of the following costs?
As
.u
n
k
Bt
.o
t
a
l
Cv
.a
ri
a
bl
e
D
in
.cr
e
m
e
nt
al
Efi
.x
e
d
Refer to section 10.1
6.
Which one of the following is an example of a sunk cost?
A
$
.1,
5
0
0
of
lo
st
sa
le
s
b
ec
a
us
e
a
n
it
e
m
w
as
o
ut
of
st
oc
k
B
$
.1,
2
0
0
p
ai
d
to
re
p
ai
r
a
m
ac
hi
n
e
la
st
y
e
ar
C
$
.2
0,
0
0
0
pr
oj
ec
t
th
at
m
us
t
b
e
fo
rf
ei
te
d
if
a
n
ot
h
er
pr
oj
ec
t
is
ac
ce
pt
e
d
D
$
.4,
5
0
0
re
d
uc
ti
o
n
in
cu
rr
e
nt
sh
oe
sa
le
s
if
a
st
or
e
co
m
m
e
nc
es
se
lli
n
g
sa
n
d
al
s
E
$
.1,
8
0
0
in
cr
ea
se
in
co
m
ic
b
oo
k
sa
le
s
if
a
st
or
e
co
m
m
e
nc
es
se
lli
n
g
p
uz
zl
es
Refer to section 10.2
7.
Which of the following should be included in the analysis of a new
product?
I. money already spent for research and development of the new
product
II. reduction in sales for a current product once the new product is
introduced
III. increase in accounts receivable needed to finance sales of the new
product
IV. market value of a machine owned by the firm which will be used
to produce the new product
AI
.a
n
d
III
o
nl
y
BII
.a
n
d
IV
o
nl
y
CI,
.II,
a
n
d
III
o
nl
y
D
II,
.III
,
a
n
d
IV
o
nl
y
EI,
.II,
III
,
a
n
d
IV
Refer to section 10.2