Exam 10: Capital Budgeting and Cash Flow Analysis

When managers knowingly bias estimates of cash flows from investment projects in order to serve their personal objectives, they are ____.

A(n) ____ project is one whose acceptance is dependent on the adoption of one or more other projects.

Basin Manufacturing (40% marginal tax rate) is considering a plant expansion project. The equipment will cost $100,000 and will require an additional $10,000 for delivery and installation. The expansion also will require Basin to increase immediately its net working capital by $25,000. The expansion is expected to generate revenues of $150,000 per year. Calculate the project's net investment.

If a firm sells an asset for less than its book value, ____.

Maritech purchased a pellet mill 4 years ago for $60,000. The mill is being depreciated over 7 years using MACRS. Maritech is planning to replace the mill with a higher volume unit that will cost $110,000 installed. If the old mill can be sold for $25,000, what is the tax liability? Assume a marginal tax rate of 40%. Use the rounded MACRS schedule listed below. (7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)

Depreciation is based on the asset cost plus all of the following EXCEPT ____.

The decision by the Municipal Transportation Authority to either refurbish existing buses, to buy new large buses, or to supplement the existing fleet with mini-buses is an example of ____.

The ____ the amount of depreciation charged in a period, the ____ will be the firm's taxable income.

Cash flows for all investment projects should be projected over the ____ of the project.

Which of the following is generally considered a problem associated with cash flow estimation?

Which of the following items is NOT considered as a part of the net investment calculation?

Parker Chemicals purchased a hexene extractor 10 years ago for $120,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero. It can be sold today for $10,000. Parker is considering purchasing a new more efficient extractor that would cost $270,000 installed and would be depreciated as a 10-year MACRS asset. The company's marginal tax rate is 40%. Determine the NINV if the old extractor is sold and the new one is purchased.

____ is the term used when the initial cost of all acceptable capital budgeting projects is greater than the total funds the firm has available.

When calculating the net cash flow in a project's expected final year, the ____.

A conventional project can also be considered ____.

Parker Chemicals purchased a hexene extractor 10 years ago for $120,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero. It can be sold today for $10,000. Parker is considering purchasing a new more efficient extractor that would cost $270,000 installed and would be depreciated as a 10-year MACRS asset. (The depreciation rate for year one is 10 percent for this asset.) The company's marginal tax rate is 40%. If the new extractor is purchased, annual revenues will increase by $10,000 and annual operating expenses will decrease by $10,000. What is the net cash flow in year 1?

The net investment calculation for an ____ project normally includes ____.

Which of the following is NOT a major difficulty in implementing the basic capital budgeting model?

Which of the following would not be classified as a capital expenditure for decision-making purposes?

Rough & Tumble Clothiers is considering the purchase of a new loom to replace a less efficient one. The new machine will cost $240,000 including installation. The machine being replaced was purchased 5 years ago for $150,000 and is being depreciated as a 7-year MACRS property. It can be sold for $40,000. Compute the NINV for this project if KC has a marginal tax rate of 40%. Use the rounded MACRS schedule listed below: (7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)