3) Which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows? A) Forecast assumption principle B) Base assumption principle C) Fallacy principle D) Erosion principle E) Stand-alone principle 84) The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation: A) tax shield. B) credit. C) erosion. D) opportunity cost. E) adjustment. 85) Kyle Electric has three positive net present value opportunities. Unfortunately, the firm has not been able to find financing for any of these projects. Which one of the following terms best fits the situation facing the firm? A) Sensitivity analysis B) Capital rationing C) Soft rationing D) Contingency planning E) Sunk cost 86) Forecasting risk is best defined as: A) reality risk. B) value risk. C) potential risk. D) management risk. E) estimation risk. 87) On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called? A) Inflation premium B) Required return C) Real return D) Average return E) Risk premium 88) Which one of the following is the positive square root of the variance? A) Standard deviation B) Mean C) Risk-free rate D) Average return E) Real return 89) Which one of the following could cause the total return on an investment to be a negative rate? A) Constant annual dividend amount B) Increase in the annual dividend amount C) Stock price that remains constant over the investment period D) Stock price that declines over the investment period E) Stock price that increases over the investment period
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