FIN 325 Final Exam 2023 questions and correct answers

incremental cash flows - correct answers the difference between a firm's future cash flows with a project and those without the project stand-alone principle - correct answers the assumption that evaluation of a project may be based on the project's incremental cash flows sunk cost - correct answers a cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision opportunity cost - correct answers the most valuable alternative that is given up if a particular investment is undertaken erosion - correct answers the cash flows of a new project that come at the expense of a firm's existing projects pro forma financial statements - correct answers financial statements projecting future years' operations operating cash flow - correct answers EBIT + depreciation - taxes accelerated cost recovery system - correct answers a depreciation method under US tax law allowing for the accelerated write-off of property under various classifications equivalent annual cost - correct answers the present value of a project's costs calculated on an annual basis forecasting risk - correct answers the possibility that errors in projected cash flows will lead to incorrect decisions. Also known as estimation risk.