Question

1. We can use the ___ to estimate a project's operating cash flow each period

a. modified income statement format

b. income statement format

c. balance sheet format

d. annual report format

2. Fully depreciated assets___, and so any proceeds from sale at disposal are taxable gains

a. always have a market value of zero

b. have a positive book value

c. have a negative market value

d. have a book value of zero

3. Whenever a new product competes against a company's already existing products and reduces the sales of those products, ___ occur.

a. erosion costs

b. opportunity costs

c. sunk costs

d. working capital costs

Answer 1

1:b Income Statement format

We can use the Income statement to calculate the operating cash flow since we get data about the net income, taxes and non cash expenses such as depreciation. The other options do not provide information for calculation of Operating cash flow.

2: d

Fully depreciated assets imply that the book value is zero. This is because the asset has been fully depreciated. The market value is not impacted by depreciation. Hence the entire sales proceeds are capital gain.

3: a

The loss of sales due to sale of other products of the same company are called erosion costs. Opportunity cost is the cost of losing the next best opportunity. Sunk cost is the cost which is incurred and cannot be recovered. Working capital cost is the cost of keeping working capital in the business.