11 - WGU C214 Financial Management
- Capital Budgeting - 5pts Questions
with complete solution 2025/2026
Capital Budgeting - correct answer ✔process of deciding which projects increase firm value
Steps in Capital Budgeting - correct answer ✔1. Estimate the amount & timing of the cash flows
2. Evaluate the cash flows to make the accept/reject decision
Estimation of amount & timing - correct answer ✔1. Inital outlay- start up or acquistion cost
2. Differential cash flow- cash flow associated with using the asset each year during the life of the
project
3. Terminal cash flow- cash flow associated wtih "unwinding" the project at the end of its useful life
Soft Skills - correct answer ✔project evaluation is based on incremental cash flows
Incidental cash flows (soft skills) - correct answer ✔not directly from the project but are attributable to
the project
Opportunity Costs - correct answer ✔using an asset such as land or equipment for a project implies the
loss of the ability to use the asset on another project (include in analysis)
Sunk Costs - correct answer ✔represent past outlays of cash that cannot be recouped (exclude from
analysis)
Hard Skills - correct answer ✔Tax code and TVM (time value management)
, Depreciation expenses (hard skill) - correct answer ✔most appropriate method MACRS & for
expediency- straight line
Modified Accelerated Cost Recovery System (MACRS) - correct answer ✔Expense1 = Depreciable cost x
factor for each year
Stright line (depreciation) - correct answer ✔Expense = (Cost - salvage)/life
Taxes- Asset disposals (hard skill) - correct answer ✔Tax = (Sale Proceeds - Book Value) x Tax rate
sale proceeds > BV = tax liablity
sale proceeds < BV = tax shield
Working capital investment (WCInv) (hard skill) - correct answer ✔Capital projects frequently require
increases in working capital from inventory and/or receivables
Initial Outlay Calculation - correct answer ✔Purchase price of the assest
+ Shipping & Installation Costs
= Depresciable Asset
+ Investment in Working Capital (WCInv)
+/- After-tax proceeds from sale of old asset if replacement (sale - tax)
= Net Initial Outlay
Net proceedure from sale calculation - correct answer ✔Sale price - (sale price -BV) x tax rate
Estimating Differential Cash Flows - correct answer ✔Incremental Revenue
- Incremental Costs
= Incremental Earnings Before Taxes (EBT)
- Capital Budgeting - 5pts Questions
with complete solution 2025/2026
Capital Budgeting - correct answer ✔process of deciding which projects increase firm value
Steps in Capital Budgeting - correct answer ✔1. Estimate the amount & timing of the cash flows
2. Evaluate the cash flows to make the accept/reject decision
Estimation of amount & timing - correct answer ✔1. Inital outlay- start up or acquistion cost
2. Differential cash flow- cash flow associated with using the asset each year during the life of the
project
3. Terminal cash flow- cash flow associated wtih "unwinding" the project at the end of its useful life
Soft Skills - correct answer ✔project evaluation is based on incremental cash flows
Incidental cash flows (soft skills) - correct answer ✔not directly from the project but are attributable to
the project
Opportunity Costs - correct answer ✔using an asset such as land or equipment for a project implies the
loss of the ability to use the asset on another project (include in analysis)
Sunk Costs - correct answer ✔represent past outlays of cash that cannot be recouped (exclude from
analysis)
Hard Skills - correct answer ✔Tax code and TVM (time value management)
, Depreciation expenses (hard skill) - correct answer ✔most appropriate method MACRS & for
expediency- straight line
Modified Accelerated Cost Recovery System (MACRS) - correct answer ✔Expense1 = Depreciable cost x
factor for each year
Stright line (depreciation) - correct answer ✔Expense = (Cost - salvage)/life
Taxes- Asset disposals (hard skill) - correct answer ✔Tax = (Sale Proceeds - Book Value) x Tax rate
sale proceeds > BV = tax liablity
sale proceeds < BV = tax shield
Working capital investment (WCInv) (hard skill) - correct answer ✔Capital projects frequently require
increases in working capital from inventory and/or receivables
Initial Outlay Calculation - correct answer ✔Purchase price of the assest
+ Shipping & Installation Costs
= Depresciable Asset
+ Investment in Working Capital (WCInv)
+/- After-tax proceeds from sale of old asset if replacement (sale - tax)
= Net Initial Outlay
Net proceedure from sale calculation - correct answer ✔Sale price - (sale price -BV) x tax rate
Estimating Differential Cash Flows - correct answer ✔Incremental Revenue
- Incremental Costs
= Incremental Earnings Before Taxes (EBT)
