- CFA Exams
- CFA Level I Exam
- Study Session 7. Corporate Finance (1)
- Reading 19. Capital Budgeting
- Subject 1. Cash flow projections
CFA Practice Question
Which of the following statements is false?
B. The operating cash flows are the incremental cash inflows over the project's economics life.
C. Terminal year cash flows exclude the after-tax salvage value of the fixed assets, adjusted for taxes, and the return of the net working capital.
D. The net cash flow is determined as the sum of the cash flows from the initial investment, the operating cash flows, and the terminal year cash flows.
A. The initial investment includes the up-front cost of fixed assets plus any increases in net working capital.
B. The operating cash flows are the incremental cash inflows over the project's economics life.
C. Terminal year cash flows exclude the after-tax salvage value of the fixed assets, adjusted for taxes, and the return of the net working capital.
D. The net cash flow is determined as the sum of the cash flows from the initial investment, the operating cash flows, and the terminal year cash flows.
Correct Answer: C
The terminal year cash flows include the cash flow received from the sale of the asset (adjusted for taxes) and the amount recovered from the net working capital.
User Contributed Comments 3
User | Comment |
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BryonBUI | Don't quite agree with D. What is the concept of Net CF? where is TVM? |
shash0678 | I too feel D is incorrect since PV is not mentioned. |
davidt87 | net cash flow is just that. no adjustment for time value of money |