126) The 'identify the problem' stage of capital budgeting gathers information from all parts of the value

chain to evaluate alternative projects.


127) Managers using discounted cash flow methods to make capital budgeting decisions make the same

decisions that they would make if they used the accrual accounting rate-of-return methods.


128) Internal rate-of-return is a method of calculating the expected net monetary gain or loss from a

project by discounting all expected future cash inflows and outflows to the present point in time.


129) The four categories of cash flow for an investment project are: (1) net initial investment; (2) net

income; (3) after tax cash flow from operations; and (4) after tax cash flow from terminal disposal of

an asset.


130) The accrual accounting rate of return is the method of capital budgeting that is based most closely

on the information in the financial statements.



131) Capital budgeting focuses on projects over their entire lives to consider all the cash flows or cash

savings from investing in a single project.



132) Depreciation tax deductions result in tax savings that partially offset the cost of acquiring the

capital asset.



133) In determining whether to keep a machine or replace it, the original cost of the machine is always a

relevant factor.




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