FIN-3403 Midterm: fin3403 test 3 rvw.docx
Document Summary
Chapter 10: in this context, an opportunity cost refers to the value of an asset or other input that will be used in a project. The relevant cost is what the asset or input is actually worth today, not, for example, what it cost to acquire: for tax purposes, a firm would choose macrs because it provides for larger depreciation deductions earlier. These larger deductions reduce taxes, but have no other cash consequences. Notice that the choice between macrs and straight-line is purely a time value issue; the total depreciation is the same, only the timing differs: it"s probably only a mild over-simplification. The cash portion of current assets will be retrieved. Some receivables won"t be collected, and some inventory will not be sold, of course. Counterbalancing these losses is the fact that inventory sold above cost (and not replaced at the end of the project"s life) acts to increase working capital.
