FIN 3113 Chapter 10 Exam Questions with Correct Answers Latest Update 2025/2026
Sunk Cost - Answers Cost we have already paid or have already incurred the liability to pay.
Cannot be changed by the decision today to accept or reject a project.
Opportunity Cost - Answers Requires us to give up a benefit
Erosion - Answers Negative impact on the cash flows of an existing product from the
introduction of a new product.
Project Cash Flow - Answers Project Operating cash flow - project change in net working capital
- project capital spending
Operating Cash Flow - Answers EBIT + Depreciation - Taxes
First step in estimating cash flow is to determine the _____ cash flows - Answers Relevant
When developing cash flows for capital budgeting, it is _____ to overlook important items. -
Answers Easy
Incremental cash flows come about as an ____ consequence of taking a project under
consideration. - Answers Direct
____ principle: once the incremental cash flows from a project have been identified, the project
can be viewed as a minifirm - Answers Stand-alone
T/F: A sunk cost is an example of a relevant incremental cash flow. - Answers False
Example of an opportunity cost - Answers Rental income likely to be lost by using a vacant
building for an upcoming project.
What are considered relevant cash flows? - Answers Cash flows from opportunity costs, cash
flows from beneficial spillover effects, & Cash flows from erosion effects.
Erosion will ______ the sales of existing products. - Answers Reduce
Investment in NWC arises when _____. - Answers Credit sales are made, inventory is purchased,
and cash is kept for unexpected expenditures.
Interest expenses incurred on debt financing are _______ when computing cash flows from a
project. - Answers ignored
Cash flows should always be considered on a ______ basis - Answers after-tax
Fixed Costs - Answers Rent on a production facility and cost of equipment
Operating cash flow is a function of _____ - Answers Depreciation, EBIT, Taxes
Sunk Cost - Answers Cost we have already paid or have already incurred the liability to pay.
Cannot be changed by the decision today to accept or reject a project.
Opportunity Cost - Answers Requires us to give up a benefit
Erosion - Answers Negative impact on the cash flows of an existing product from the
introduction of a new product.
Project Cash Flow - Answers Project Operating cash flow - project change in net working capital
- project capital spending
Operating Cash Flow - Answers EBIT + Depreciation - Taxes
First step in estimating cash flow is to determine the _____ cash flows - Answers Relevant
When developing cash flows for capital budgeting, it is _____ to overlook important items. -
Answers Easy
Incremental cash flows come about as an ____ consequence of taking a project under
consideration. - Answers Direct
____ principle: once the incremental cash flows from a project have been identified, the project
can be viewed as a minifirm - Answers Stand-alone
T/F: A sunk cost is an example of a relevant incremental cash flow. - Answers False
Example of an opportunity cost - Answers Rental income likely to be lost by using a vacant
building for an upcoming project.
What are considered relevant cash flows? - Answers Cash flows from opportunity costs, cash
flows from beneficial spillover effects, & Cash flows from erosion effects.
Erosion will ______ the sales of existing products. - Answers Reduce
Investment in NWC arises when _____. - Answers Credit sales are made, inventory is purchased,
and cash is kept for unexpected expenditures.
Interest expenses incurred on debt financing are _______ when computing cash flows from a
project. - Answers ignored
Cash flows should always be considered on a ______ basis - Answers after-tax
Fixed Costs - Answers Rent on a production facility and cost of equipment
Operating cash flow is a function of _____ - Answers Depreciation, EBIT, Taxes
