1) In measuring cash flows we are interested only in the incremental or incremental
after-tax cash flows that are attributed to the investment proposal being evaluated.
2) Cash flows associated with a project’s termination generally include the salvage
value of the project net of any taxes associated with the sale.
3) The break-even quantity of output is that quantity of output, in units, that results in
an EBIT equal to zero.
4) Small company stocks have historically had higher average annual returns than large
company stocks, and also a higher risk premium.
5) Conceptually, stock dividends and stock splits may be expected to increase the
shareholder’s value.
6) An infinite-life replacement chain allows projects of different lengths to be
compared.
7) A firm can increase the growth rate of common stockholders’ investment in the firm
by retaining more earnings or increasing return on equity.
8) The cost of a particular source of capital (debt, preferred stock, common stock) is
equal to the investor’s required rate of return after adjusting for the effects of both
flotation costs and corporate taxes.
9) The change in the value of a corporation’s common stock as the result of growth is
the same regardless of whether the growth is the result of internal growth or the
infusion of new capital.
10) An all-stock portfolio is more risky than a portfolio consisting of all bonds.
11) If a project’s internal rate of return is greater than the project’s required return, then
the project’s profitability index will be greater than one.