Question 1

Which one of these is a requirement when computing the net present value of a capital project?

Accepted Answer

A) The discount rate used must be a nominal rate. 
B) The discount rate must be stated in real terms. 
C) Nominal cash flows must be discounted using a real rate. 
D) Real cash flows must be converted to nominal cash flows. 
E) Real cash flows must be discounted using a real rate. 
A) The discount rate used must be a nominal rate. 
B) The discount rate must be stated in real terms. 
C) Nominal cash flows must be discounted using a real rate. 
D) Real cash flows must be converted to nominal cash flows. 
E) Real cash flows must be discounted using a real rate.

Question 2

Which one of these statements related to depreciation is correct for a firm with taxable income of $121,600 and after-tax income of $74,200?

Accepted Answer

A) Depreciation increases the net book value of the firm's assets. 
B) Depreciation is a noncash expense that increases the firm's cash flows. 
C) Depreciation lowers the firm's net income but does not affect its cash flows. 
D) Depreciation has no effect on either the firm's net income or its cash flows. 
E) Depreciation decreases both the firm's net income and its cash flows. 
A) Depreciation increases the net book value of the firm's assets. 
B) Depreciation is a noncash expense that increases the firm's cash flows. 
C) Depreciation lowers the firm's net income but does not affect its cash flows. 
D) Depreciation has no effect on either the firm's net income or its cash flows. 
E) Depreciation decreases both the firm's net income and its cash flows.

Question 3

The cash flows of a new project that come at the expense of a firm's existing projects are called

Accepted Answer

A) opportunity costs. 
B) net working capital expenses. 
C) erosion costs. 
D) salvage value expenses. 
E) sunk costs. 
A) opportunity costs. 
B) net working capital expenses. 
C) erosion costs. 
D) salvage value expenses. 
E) sunk costs.

Question 4

Which of the following should be included in the analysis of a proposed project?

Accepted Answer

A) Incremental and sunk costs only 
B) Opportunity costs,erosion,and sunk costs 
C) Opportunity costs and synergy only 
D) Synergy,erosion,opportunity costs,and incremental costs 
E) Incremental costs minus any sunk costs plus synergy 
A) Incremental and sunk costs only 
B) Opportunity costs,erosion,and sunk costs 
C) Opportunity costs and synergy only 
D) Synergy,erosion,opportunity costs,and incremental costs 
E) Incremental costs minus any sunk costs plus synergy

Question 5

Which one of the following will decrease a firm's net working capital?

Accepted Answer

A) A decrease in fixed assets 
B) An increase in inventory 
C) An increase in the firm's checking account balance 
D) A decrease in accounts payable 
E) A decrease in accounts receivable 
A) A decrease in fixed assets 
B) An increase in inventory 
C) An increase in the firm's checking account balance 
D) A decrease in accounts payable 
E) A decrease in accounts receivable

Question 6

Uptown Furniture purchased a corner lot 5 years ago at a cost of $670,000.The lot was recently appraised at $640,000.At the time of the purchase,the company spent $45,000 to grade the lot and another $100,000 to pave the lot for commuter parking.The company now wants to build a new retail store on the site.The building cost is estimated at $1.6 million.What amount should be used as the initial cash flow for this building project?

Accepted Answer

A) $2,415,000 
B) $1,600,000 
C) $2,385,000 
D) $2,240,000 
E) $2,270,000 
A) $2,415,000 
B) $1,600,000 
C) $2,385,000 
D) $2,240,000 
E) $2,270,000

Question 7

Toni's Tools is comparing machines to determine which one to purchase.The machines sell for differing prices,have differing operating costs,differing machine lives,and will be replaced when worn out.These machines should be compared using

Accepted Answer

A) net present value only. 
B) both net present value and the internal rate of return. 
C) the replacement parts approach. 
D) the depreciation tax shield approach. 
E) the equivalent annual cost method. 
A) net present value only. 
B) both net present value and the internal rate of return. 
C) the replacement parts approach. 
D) the depreciation tax shield approach. 
E) the equivalent annual cost method.

Question 8

Which one of these represents the difference between a nominal rate and a real rate as they relate to project analysis?

Accepted Answer

A) Interest rate on any project debt 
B) Risk-free rate of interest 
C) Market rate of return 
D) Rate of inflation 
E) Required rate of return 
A) Interest rate on any project debt 
B) Risk-free rate of interest 
C) Market rate of return 
D) Rate of inflation 
E) Required rate of return

Question 9

Ernie's Electrical is evaluating a project that will increase sales by $48,000 and costs by $16,000.The project will initially cost $89,000 for fixed assets that will be depreciated straight-line to a zero book value over the 6-year life of the project.The applicable tax rate is 34 percent.What is the project's annual operating cash flow?

Accepted Answer

A) $23,300.13 
B) $21,450.87 
C) $26,163.33 
D) $22,406.67 
E) $18,180.09 
A) $23,300.13 
B) $21,450.87 
C) $26,163.33 
D) $22,406.67 
E) $18,180.09

Question 10

A project requires $1.208 million in new equipment that will be depreciated straight-line to zero over the 5-year life of the project.The firm expects to sell the equipment at the end of the project for 20 percent of its original cost.The discount rate is 13 percent and the tax rate is 35 percent.What is the after-tax salvage value of the equipment?

Accepted Answer

A) $168,800 
B) $174,000 
C) $148,900 
D) $167,400 
E) $157,040 
A) $168,800 
B) $174,000 
C) $148,900 
D) $167,400 
E) $157,040

Question 11

A project will produce an operating cash flow of $38,400 a year for 4 years.The initial cash outlay for equipment will be $57,300 and the net after-tax salvage value of $8,415 will be received at the end of the project.The project initially requires $1,200 of net working capital that will be fully recovered at project's end.What is the net present value of the project if the required rate of return is 16 percent?

Accepted Answer

A) $54,260.42 
B) $49,896.87 
C) $48,368.19 
D) $53,300.41 
E) $47,398.29 
A) $54,260.42 
B) $49,896.87 
C) $48,368.19 
D) $53,300.41 
E) $47,398.29

Question 12

DeCento's is analyzing two mutually exclusive machines to determine which one it should purchase.Whichever machine is purchased,it will be replaced at the end of its useful life.The company requires a return of 15 percent and uses straight-line depreciation to a zero book value over the life of the machine.Machine A has a cost of $386,000,annual operating costs of $29,000,and life of 4 years.Machine B costs $257,000,has annual operating costs of $19,000,and a life of 3 years.The firm currently pays no taxes.Which machine should be purchased and why?

Accepted Answer

A) Machine A because it will save the company about $32,642 a year 
B) Machine A because it will save the company about $19,261 a year 
C) Machine B because it will save the company about $32,642 a year 
D) Machine B because it will save the company about $10,000 a year 
E) Machine B because it will save the company about $19,261 a year 
A) Machine A because it will save the company about $32,642 a year 
B) Machine A because it will save the company about $19,261 a year 
C) Machine B because it will save the company about $32,642 a year 
D) Machine B because it will save the company about $10,000 a year 
E) Machine B because it will save the company about $19,261 a year

Question 13

Farris Industrial purchased a machine 5 years ago at a cost of $229,380.The machine is being depreciated using the straight-line method over 8 years.The tax rate is 35 percent and the discount rate is 16 percent.If the machine is sold today for $74,500,what will be the after-tax salvage value?

Accepted Answer

A) $74,500.00 
B) $67,625.09 
C) $78,531.13 
D) $37,389.69 
E) $115,454.05 
A) $74,500.00 
B) $67,625.09 
C) $78,531.13 
D) $37,389.69 
E) $115,454.05

Question 14

Walks Softly sells customized shoes.Currently,it sells 14,800 pairs of shoes annually at an average price of $79 a pair.The company is considering adding a lower-priced line of shoes that will sell for $59 a pair.The company estimates it can sell 4,800 pairs of the lower-priced shoes but will sell 1,900 less pairs of the higher-priced shoes by doing so.What is the amount of the sales that should be used when evaluating the addition of the lower-priced shoes?

Accepted Answer

A) $133,100 
B) $1,245,000 
C) $416,300 
D) $1,302,300 
E) $283,200 
A) $133,100 
B) $1,245,000 
C) $416,300 
D) $1,302,300 
E) $283,200

Question 15

Margarite's Enterprises is considering a new 5-year project that will require $612,000 for new fixed assets,$160,000 for inventory,and $35,000 for accounts receivable.Short-term debt is expected to increase by $110,000.The fixed assets will be depreciated straight-line to zero over the life of the project.The project is expected to generate annual sales of $694,000 with costs of $428,000.The tax rate is 35 percent,and the required rate of return is 15 percent.What is the amount of the earnings before interest and taxes (EBIT)for the first year of this project?

Accepted Answer

A) $138,500 
B) $143,600 
C) $167,000 
D) $93,340 
E) $90,025 
A) $138,500 
B) $143,600 
C) $167,000 
D) $93,340 
E) $90,025

Question 16

A project will increase sales by $92,800 and cash expenses by $53,200.The project will cost $89,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project.The tax rate is 35 percent.What is the operating cash flow of the project using the tax shield approach?

Accepted Answer

A) $42,350.50 
B) $28,650.00 
C) $33,527.50 
D) $35,170.50 
E) $37,672.50 
A) $42,350.50 
B) $28,650.00 
C) $33,527.50 
D) $35,170.50 
E) $37,672.50

Question 17

A project requires $1.08 million of new equipment that will be depreciated straight-line to zero over the project's 4-year life.The equipment is expected to be sold at the end of the project for 33 percent of its original cost.Net working capital equal to 12 percent of sales is required and will be recouped at the end of the project.Annual sales are projected at $487,500 with annual costs of $302,400.What is the recovery amount attributable to net working capital at the end of the project?

Accepted Answer

A) $25,555 
B) $22,212 
C) $40,100 
D) $58,500 
E) $42,550 
A) $25,555 
B) $22,212 
C) $40,100 
D) $58,500 
E) $42,550

Question 18

The top-down approach to computing the operating cash flow

Accepted Answer

A) applies only if a project produces sales. 
B) ignores all noncash items. 
C) can only be used if the entire cash flows of a firm are included. 
D) is equal to (Sales − Costs − Taxes + Depreciation). 
E) includes the interest expense related to a project. 
A) applies only if a project produces sales. 
B) ignores all noncash items. 
C) can only be used if the entire cash flows of a firm are included. 
D) is equal to (Sales − Costs − Taxes + Depreciation). 
E) includes the interest expense related to a project.

Question 19

Global Enterprises has spent $134,000 on research developing a new type of shoe.For this shoe to now be manufactured,the firm will need to expand into an empty building that it currently owns.The firm was offered $229,000 last week for that building.An additional $342,000 will be required for new equipment and building improvements.Labor and material costs are estimated at $4.98 per pair of shoes.Interest expense on the loan needed to finance the production of this new shoe will be $17,800 a year.Which one of these correctly identifies the sunk costs?

Accepted Answer

A) $229,000 value of the building 
B) $134,000 for research 
C) $229,000 value of the building plus $342,000 for new equipment and improvements 
D) $17,800 for interest plus $134,000 for research 
E) $229,000 for the building plus $134,000 for research 
A) $229,000 value of the building 
B) $134,000 for research 
C) $229,000 value of the building plus $342,000 for new equipment and improvements 
D) $17,800 for interest plus $134,000 for research 
E) $229,000 for the building plus $134,000 for research

Question 20

You have the opportunity to bid on a project that involves manufacturing 110,000 units per year for 4 years.The project will require $698,000 in fixed assets that would be depreciated straight-line to zero over the project's life.These assets have an expected pretax salvage value of $149,000 at the end of the project. The project would require $56,000 of net working capital,all of which is recoverable,along with $312,000 in annual expenses.What is the minimum price per unit you should bid on this project if you require a rate of return of 18 percent and have a tax rate of 34 percent?

Accepted Answer

A) $5.4723 
B) $6.0184 
C) $4.9272 
D) $5.3133 
E) $5.7040 
A) $5.4723 
B) $6.0184 
C) $4.9272 
D) $5.3133 
E) $5.7040

Which one of these is a requirement when computing the net present value of a capital project?

Which one of these statements related to depreciation is correct for a firm with taxable income of $121,600 and after-tax income of $74,200?

The cash flows of a new project that come at the expense of a firm's existing projects are called

Which of the following should be included in the analysis of a proposed project?

Which one of the following will decrease a firm's net working capital?

Toni's Tools is comparing machines to determine which one to purchase.The machines sell for differing prices,have differing operating costs,differing machine lives,and will be replaced when worn out.These machines should be compared using

Which one of these represents the difference between a nominal rate and a real rate as they relate to project analysis?

Farris Industrial purchased a machine 5 years ago at a cost of $229,380.The machine is being depreciated using the straight-line method over 8 years.The tax rate is 35 percent and the discount rate is 16 percent.If the machine is sold today for $74,500,what will be the after-tax salvage value?

The top-down approach to computing the operating cash flow

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

Which one of these is a requirement when computing the net present value of a capital project?

Which one of these statements related to depreciation is correct for a firm with taxable income of $121,600 and after-tax income of $74,200?

The cash flows of a new project that come at the expense of a firm's existing projects are called

Which of the following should be included in the analysis of a proposed project?

Which one of the following will decrease a firm's net working capital?

Toni's Tools is comparing machines to determine which one to purchase.The machines sell for differing prices,have differing operating costs,differing machine lives,and will be replaced when worn out.These machines should be compared using

Which one of these represents the difference between a nominal rate and a real rate as they relate to project analysis?

Farris Industrial purchased a machine 5 years ago at a cost of $229,380.The machine is being depreciated using the straight-line method over 8 years.The tax rate is 35 percent and the discount rate is 16 percent.If the machine is sold today for $74,500,what will be the after-tax salvage value?

The top-down approach to computing the operating cash flow

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