Asked by Aiden Kravitz on Jul 20, 2024
Verified
Which of the following is true regarding project evaluation?
A) Financing costs must be included in the statement of cash flows because they are not accounted for elsewhere.
B) The stand-alone principle calls for evaluation of a project based on its incremental cash flows.
C) Changes in NWC are not considered incremental cash flows.
D) When fixed assets are sold at the project end, there are usually no tax consequences of the sale.
E) Whether straight-line depreciation or CCA is used will have no impact on project NPV.
Financing Costs
Expenses incurred by a company in the process of raising funds, including interest payments, issuance costs of securities, and other related expenses.
Incremental Cash Flows
The additional cash flows from undertaking a project or investment.
NWC
Net Working Capital, which is calculated as current assets minus current liabilities, indicating the company's short-term financial health.
- Acquire knowledge on the methodology of appraising projects by focusing entirely on incremental cash flows.
- Comprehend the significance of net working capital changes in project evaluation and its effects on cash flows.
- Comprehend the solitary principle in evaluating projects.
Verified Answer
KE
Kimberly EspinozaJul 25, 2024
Final Answer :
B
Explanation :
The stand-alone principle, which suggests evaluating a project based on its incremental cash flows, is a fundamental concept in project evaluation. This principle allows for the isolation of a project's financial impact from the rest of the company's operations, focusing on the additional cash flows generated or expenses incurred directly because of the project.
Learning Objectives
- Acquire knowledge on the methodology of appraising projects by focusing entirely on incremental cash flows.
- Comprehend the significance of net working capital changes in project evaluation and its effects on cash flows.
- Comprehend the solitary principle in evaluating projects.