Some of the factors (with selected explanations) used in calculating the basic "net present value" and the "incremental" cash flows of a capital project are:
(i) - expected after-tax terminal value, including recapture of working capital.
(ii) - net income, which belongs to the equity holders of the firm.
(iii) - initial investment at inception.
(iv) - depreciation, and the fact that depreciation is a noncash expense. (i.e. it is removed from the calculation of net income, for tax purposes, but added back because it did not actually flow out of the firm)
(v) - weighted-average cost of capital.
(vi) - the firm's after-tax payment of interest to debt holders.
(vii) - economic life of the capital project in years.
-The "incremental" cash flows of a capital project are calculated by using:
A) (i) , (ii) , and (iii) .
B) (ii) , (iv) , and (vi) .
C) (i) , (iii) , (v) , and (vii) .
D) (iv) , (v) , (vi) , and (vii) .
Correct Answer:
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