Which of the following statements is correct
-Which of the following statements is correct?
Capital budgeting analysis for expansion and replacement projects is essentially the same because the types of cash flows involved are the same.
In estimating incremental operating cash flows for the purpose of capital budgeting, interest payments should not be included since the effects of these payments are already included in the rate of return the firm is required to earn from its investments.
When equipment is sold, companies receive a tax credit as long as the salvage value is less than the initial cost of the equipment.
All of the above answers are correct.
-A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should
Increase the required rate of return used to evaluate the project to reflect the higher risk of the project.
Increase the NPV of the asset to reflect the greater risk.
Reject the asset, since its acceptance would increase the risk of the firm.
Ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm.
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