116) The very last step in the final stage in the capital budgeting process is to make the investment

identified previously.

116)

117) Relevant cash flows are expected future cash flows that differ among the alternative uses of

investment funds.

117)

 

118) In calculating the net initial investment cash flows for capital budgeting analysis any increase in

working capital required for the project should be included.

118)

 

119) A capital budgeting project is accepted if the required rate-of-return equals or exceeds the internal

rate-of-return.

119)

120) The net present value method calculates the expected monetary gain or loss from a project by

discounting all expected future cash inflows and outflows to the present point in time using the

hurdle rate.

120)

 

121) The tendency to be influenced by sunk costs and to continue to pour money into unviable projects

is a common psychological phenomenon which is called ESCALATION OF COMMITMENT.

121)

 

122) There is an inconsistency in using the net present value method as best for capital budgeting

decisions and then using a different method to evaluate performance.

122)

 

123) The net present value method can be used in situations where the required rate-of-return varies

over the life of the project.

123)

 

124) The use of an accelerated method of depreciation for tax purposes would usually increase the

present value of the investment.

124)

 

46

125) A capital budget spans only a one-year period. 125)

 

 

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