Exam 10: Capital Budgeting and Cash Flow Analysis

There is neither a gain nor a loss on the sale of a depreciable asset for an amount exactly equal to its ____.

Which of the following is NOT a major step in the capital budgeting process?

A Lotta Bread Corp. is replacing an entire baking line that was purchased for $420,000 and currently has a book value of $60,000. The new more efficient line will cost $940,000 installed and can be depreciated as a 7-year MACRS asset. With the increased efficiency, Lotta expects annual revenues to increase by $425,000 and operating expenses to increase by $170,000. The older machine, which was being depreciated at the straight-line rate of $20,000/year, will be sold for $30,000. What are the net cash flows for year 2? Assume the firm's marginal tax rate is 40% and that the year 2 depreciation rate is 24.49%.

When a firm sells an asset for ____, it realizes a capital gain and must pay income taxes on it.

Airstat is replacing an old stamping line that cost $80,000 five years ago, with a new, more efficient machine that will cost $225,000. Shipping and installation will cost an additional $20,000. The old machine has a book value of $15,000 but will be sold as scrap for $5,000. The new machine will be depreciated with a 7-year life under MACRS guidelines. With the increased production, inventories will increase $4,000, accounts receivable will increase $16,000, and accounts payable will increase $14,000. If Airstat has a marginal tax rate of 40 percent, what is the net investment?

The net investment calculation for an asset replacement decision normally includes any ____.

The ____ curve is a schedule of projects arranged in ____ order according to their expected rates of return.

Why should sunk costs not be considered when evaluating a project?

Which of the following is a basic principle when estimating a project's cash flows?

Depreciation ____.