Reference no: EM131595868

1. Which one of these statements is correct?

A. Operating cash flow is equal to net income plus depreciation plus taxes.

B. Sunk costs should be included in the initial cost of a project.

C. Synergy occurs when a new product reduces the sales of a current product.

D. The cost of test marketing a product prior to deciding whether or not to produce the product is a sunk cost.

E. Real cash flows must be discounted at the nominal rate.

2. Which one of these statements related to depreciation is correct for a firm with taxable income of $121,600 and aftertax income of $74,200?

A. Depreciation increases the net book value of the firm's assets.

B. Depreciation in a non-cash expense that increases the firm's cash flows.

C. Depreciation lowers the firm's net income but does not affect its cash flows.

D. Depreciation has no effect on either the firm's net income or its cash flows.

E. Depreciation decreases both the firm's net income and its cash flows.

3. Assume stocks A and B have had identical stock prices every day for the past three years. Stock A pays a dividend but Stock B does not. Which one of these statements applies to these stocks for the last three years?

A. Their annual total rates of return are equal.

B. Stock A's total return has been higher than Stock B's every year.

C. Stock B's capital gain has exceeded Stock A's every year.

D. Stock A's total return had to be positive every year.

E. Stock B's holding period return exceeded that of Stock A.