Question 1

The pretax salvage value of an asset is equal to the

Accepted Answer

A) book value if straight-line depreciation is used. 
B) book value if MACRS depreciation is used. 
C) market value minus the book value. 
D) book value minus the market value. 
E) market value. 
A) book value if straight-line depreciation is used. 
B) book value if MACRS depreciation is used. 
C) market value minus the book value. 
D) book value minus the market value. 
E) market value.

Question 2

The Market is considering a project that will require the purchase of $1.27 million in new equipment.The equipment will be depreciated straight-line to zero over the 6-year life of the project.What is the value of the depreciation tax shield in Year 2 of the project if the tax rate is 35 percent?

Accepted Answer

A) $64,209.11 
B) $121,012.12 
C) $74,083.33 
D) $81,028.40 
E) $137,583.33 
A) $64,209.11 
B) $121,012.12 
C) $74,083.33 
D) $81,028.40 
E) $137,583.33

Question 3

The sale of an asset creates an aftertax cash flow in an amount equal to the

Accepted Answer

A) Sale price - Book value. 
B) Sale price - Tax rate × (Book value - Sale price). 
C) Sale price - Tax rate × (Sale price - Book value). 
D) Sale price + Tax rate × (Sale price - Book value). 
E) Sale price × (1 - Tax rate). 
A) Sale price - Book value. 
B) Sale price - Tax rate × (Book value - Sale price). 
C) Sale price - Tax rate × (Sale price - Book value). 
D) Sale price + Tax rate × (Sale price - Book value). 
E) Sale price × (1 - Tax rate).

Question 4

The equivalent annual cost is a method used to primarily compare mutually exclusive machines

Accepted Answer

A) with different initial costs but similar lives. 
B) depreciated using various methods. 
C) that will be replaced with those that will not. 
D) that perform different functions. 
E) that will be replaced and have unequal lives. 
A) with different initial costs but similar lives. 
B) depreciated using various methods. 
C) that will be replaced with those that will not. 
D) that perform different functions. 
E) that will be replaced and have unequal lives.

Question 5

Data,Inc.purchased some fixed assets 4 years ago at a cost of $21,650 and is selling them today at a price of $4,500.The assets are classified as 5-year property for MACRS.The MACRS table values are 0.2000,0.3200,0.1920,0.1152,0.1152,and 0.0576 for Years 1 to 6,respectively.What is the current book value of these assets?

Accepted Answer

A) $1,247.04 
B) $3,741.12 
C) $6,309.19 
D) $4,016.67 
E) $8,420.02 
A) $1,247.04 
B) $3,741.12 
C) $6,309.19 
D) $4,016.67 
E) $8,420.02

Question 6

Computers used for business purposes are assigned to which MACRS property class?

Accepted Answer

A) 3-year 
B) 7-year 
C) 10-year 
D) 5-year 
E) 15-year 
A) 3-year 
B) 7-year 
C) 10-year 
D) 5-year 
E) 15-year

Question 7

You purchased an asset 3 years ago at a cost of $135,000 and sold it today for $82,500.The equipment is 5-year property for MACRS.The MACRS table values are 0.2000,0.3200,0.1920,0.1152,0.1152,and 0.0576 for Years 1 to 6,respectively.Which one of the following statements is correct if the tax rate is 34 percent?

Accepted Answer

A) The current book value is $41,800. 
B) The taxable amount on the sale is $38,880. 
C) The tax due on the sale is $14,830.80. 
D) The book value today is $37,478. 
E) The after-tax salvage value is $38,880. 
A) The current book value is $41,800. 
B) The taxable amount on the sale is $38,880. 
C) The tax due on the sale is $14,830.80. 
D) The book value today is $37,478. 
E) The after-tax salvage value is $38,880.

Question 8

Net working capital

Accepted Answer

A) can be ignored in project analysis because any expenditure is normally recouped by the end of the project. 
B) requirements generally,but not always,create a cash outflow at the beginning of a project. 
C) expenditures commonly occur at the end of a project. 
D) is ignored in project analysis because any change in net working capital is a sunk cost. 
E) is the only initial expenditure where at least a partial recovery can be made at the end of a project. 
A) can be ignored in project analysis because any expenditure is normally recouped by the end of the project. 
B) requirements generally,but not always,create a cash outflow at the beginning of a project. 
C) expenditures commonly occur at the end of a project. 
D) is ignored in project analysis because any change in net working capital is a sunk cost. 
E) is the only initial expenditure where at least a partial recovery can be made at the end of a project.

Question 9

Uptown Motors is analyzing a project with annual sales of $420,000,straight-line depreciation of $28,700 a year,and a net working capital requirement of $34,000.The firm has a tax rate of 34 percent and a profit margin of 6.1 percent.The firm has no long-term debt.What is the amount of the operating cash flow?

Accepted Answer

A) $24,384.42 
B) $50,616.67 
C) $54,320.00 
D) $58,340.70 
E) $26,667.20 
A) $24,384.42 
B) $50,616.67 
C) $54,320.00 
D) $58,340.70 
E) $26,667.20

Question 10

Project analysis is focused on ________ costs.

Accepted Answer

A) total 
B) sunk 
C) variable 
D) incremental 
E) fixed 
A) total 
B) sunk 
C) variable 
D) incremental 
E) fixed

Question 11

Lefty's just purchased some equipment that is classified as 7-year property for MACRS.The equipment cost $123,940.The MACRS table values are 0.1429,0.2449,0.1749,0.1249,and 0.0893,for Years 1 to 5,respectively.What will the book value of this equipment be at the end of 4 years?

Accepted Answer

A) $38,718.86 
B) $36,036.68 
C) $47,040.00 
D) $44,566.04 
E) $48,443.24 
A) $38,718.86 
B) $36,036.68 
C) $47,040.00 
D) $44,566.04 
E) $48,443.24

Question 12

A company that uses the MACRS system of depreciation

Accepted Answer

A) cannot expense any of the cost of a new asset during the first year of the asset's life. 
B) will expense the entire cost of an asset over the asset's class life. 
C) will fully depreciate most assets over a 3-year period. 
D) will forgo any benefits normally derived from the depreciation tax shield. 
E) will have equal depreciation costs each year of an asset's life. 
A) cannot expense any of the cost of a new asset during the first year of the asset's life. 
B) will expense the entire cost of an asset over the asset's class life. 
C) will fully depreciate most assets over a 3-year period. 
D) will forgo any benefits normally derived from the depreciation tax shield. 
E) will have equal depreciation costs each year of an asset's life.

Question 13

Kurt's Kabinets is looking at a 4-year project that will require $76,000 in fixed assets and another $20,000 in net working capital.Annual sales are projected at $142,800 with costs of $79,600.The company uses straight-line depreciation to a zero book value over the life of the project.The tax rate is 35 percent.What is the annual operating cash flow for this project?

Accepted Answer

A) $42,240 
B) $60,440 
C) $40,440 
D) $47,730 
E) $67,730 
A) $42,240 
B) $60,440 
C) $40,440 
D) $47,730 
E) $67,730

Question 14

Ripley Co.is considering a project that will produce sales of $36,700 and increase cash expenses by $14,600.If the project is implemented,the firm's taxes will increase from $17,420 to $21,680 and depreciation will increase from $4,000 to $5,500.What is the amount of the operating cash flow using the top-down approach?

Accepted Answer

A) $14,960 
B) $17,840 
C) $12,400 
D) $10,900 
E) $16,340 
A) $14,960 
B) $17,840 
C) $12,400 
D) $10,900 
E) $16,340

Question 15

Hill Motor Homes currently sells 1,160 Class A motor homes,2,170 Class C motor homes,and 1,600 pop-up trailers each year.It is considering adding a midrange camper and expects that if it does so the firm can sell 800 of them.However,if the new camper is added,the firm expects its Class A sales to decline by 8 percent while the Class C camper sales decline to 1,950 units.The sales of pop-ups will not be affected.Class A motor homes sell for an average of $179,000 each.Class C homes are priced at $64,500,and the pop-ups sell for $5,700 each.The new midrange camper will sell for $26,900.What is the erosion cost of the new camper?

Accepted Answer

A) $38,323,800 
B) $30,801,200 
C) $49,350,000 
D) $1,478,800 
E) $2,118,600 
A) $38,323,800 
B) $30,801,200 
C) $49,350,000 
D) $1,478,800 
E) $2,118,600

Question 16

All else equal,a project's operating cash flow will increase when the

Accepted Answer

A) net working capital requirement increases. 
B) sales projections are lowered. 
C) interest expense is lowered. 
D) depreciation expense increases. 
E) earnings before interest and taxes decreases. 
A) net working capital requirement increases. 
B) sales projections are lowered. 
C) interest expense is lowered. 
D) depreciation expense increases. 
E) earnings before interest and taxes decreases.

Question 17

Assume a firm has an ongoing need for a machine,and the current machine is operating efficiently.The firm should plan to replace this machine when it

Accepted Answer

A) reaches the end of its depreciable life. 
B) is fully paid for. 
C) reaches a point where the book value is less than half of the original cost. 
D) can be replaced with a machine that has a lower equivalent annual cost. 
E) can be sold at a price that exceeds the current book value. 
A) reaches the end of its depreciable life. 
B) is fully paid for. 
C) reaches a point where the book value is less than half of the original cost. 
D) can be replaced with a machine that has a lower equivalent annual cost. 
E) can be sold at a price that exceeds the current book value.

Question 18

A project will produce operating cash flows of $39,000 a year for 4 years.During the life of the project,inventory will be lowered by $9,000,accounts receivable will increase by $14,000,and accounts payable will increase by $11,000.The project requires $118,000 of new equipment that will be depreciated straight-line to a zero book value over 4 years.At the end of the project,net working capital will return to its normal level and the equipment will be sold for $21,000,aftertaxes.What is the net present value given a required return of 13 percent?

Accepted Answer

A) $14,322.49 
B) $13,483.48 
C) $18,117.05 
D) $13,204.16 
E) $12,804.42 
A) $14,322.49 
B) $13,483.48 
C) $18,117.05 
D) $13,204.16 
E) $12,804.42

Question 19

Bloomfield's has some idle equipment that is debt-free and also fully depreciated.If the company decides to use this equipment for a new project,what cost,if any,should be included for this equipment in the project's start-up costs?

Accepted Answer

A) Zero cost 
B) Original purchase price of the equipment 
C) Original purchase price minus any tax savings realized to date on the depreciation 
D) Current market value of the equipment 
E) Annual storage cost for the equipment 
A) Zero cost 
B) Original purchase price of the equipment 
C) Original purchase price minus any tax savings realized to date on the depreciation 
D) Current market value of the equipment 
E) Annual storage cost for the equipment

Question 20

Julian's has spent $47,200 to design a new airline carryon bag.It spent another $56,500 testing various materials for their durability.An additional $75,000 was spent on test marketing to determine both the market demand and color preference.Since the test marketing proved successful,the firm is now compiling data to evaluate the addition of this bag to its production runs.The estimated production start up costs are $932,300 with annual costs thereafter of $57,000.The discount rate is 11 percent and the estimated life of the project is 5 years.What value should be used for the Time 0 cash flow?

Accepted Answer

A) −$932,300 
B) −$1,217,300 
C) −$654,973 
D) −$1,036,000 
E) −$1,111,000 
A) −$932,300 
B) −$1,217,300 
C) −$654,973 
D) −$1,036,000 
E) −$1,111,000

The pretax salvage value of an asset is equal to the

The Market is considering a project that will require the purchase of $1.27 million in new equipment.The equipment will be depreciated straight-line to zero over the 6-year life of the project.What is the value of the depreciation tax shield in Year 2 of the project if the tax rate is 35 percent?

The sale of an asset creates an aftertax cash flow in an amount equal to the

The equivalent annual cost is a method used to primarily compare mutually exclusive machines

Computers used for business purposes are assigned to which MACRS property class?

Net working capital

Project analysis is focused on ________ costs.

Lefty's just purchased some equipment that is classified as 7-year property for MACRS.The equipment cost $123,940.The MACRS table values are 0.1429,0.2449,0.1749,0.1249,and 0.0893,for Years 1 to 5,respectively.What will the book value of this equipment be at the end of 4 years?

A company that uses the MACRS system of depreciation

All else equal,a project's operating cash flow will increase when the

Assume a firm has an ongoing need for a machine,and the current machine is operating efficiently.The firm should plan to replace this machine when it

Bloomfield's has some idle equipment that is debt-free and also fully depreciated.If the company decides to use this equipment for a new project,what cost,if any,should be included for this equipment in the project's start-up costs?

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters

Exam 8: Making Capital Investment Decisions

The pretax salvage value of an asset is equal to the

The Market is considering a project that will require the purchase of $1.27 million in new equipment.The equipment will be depreciated straight-line to zero over the 6-year life of the project.What is the value of the depreciation tax shield in Year 2 of the project if the tax rate is 35 percent?

The sale of an asset creates an aftertax cash flow in an amount equal to the

The equivalent annual cost is a method used to primarily compare mutually exclusive machines

Computers used for business purposes are assigned to which MACRS property class?

Net working capital

Project analysis is focused on ________ costs.

Lefty's just purchased some equipment that is classified as 7-year property for MACRS.The equipment cost $123,940.The MACRS table values are 0.1429,0.2449,0.1749,0.1249,and 0.0893,for Years 1 to 5,respectively.What will the book value of this equipment be at the end of 4 years?

A company that uses the MACRS system of depreciation

All else equal,a project's operating cash flow will increase when the

Assume a firm has an ongoing need for a machine,and the current machine is operating efficiently.The firm should plan to replace this machine when it

Bloomfield's has some idle equipment that is debt-free and also fully depreciated.If the company decides to use this equipment for a new project,what cost,if any,should be included for this equipment in the project's start-up costs?

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters