Question 1

Which of the following items is NOT included in the formula for calculating the present value of the capital cost allowance (CCA)tax shield?

Accepted Answer

A)  Amount of working capital to be released at the end of a project. 
B)  The capital cost allowance rate. 
C)  The firm's cost of capital. 
D)  The firm's marginal income tax rate. 
A)  Amount of working capital to be released at the end of a project. 
B)  The capital cost allowance rate. 
C)  The firm's cost of capital. 
D)  The firm's marginal income tax rate.

Question 2

The release of working capital at the end of an investment project is a taxable cash inflow.

Accepted Answer

A) True 
 B)False

Question 3

A piece of equipment, acquired in Year 1, belongs to Class 7 with a maximum CCA rate of 15%. The income tax rate is 40%. The tax savings (before discounting) from the CCA tax shield were $2,830.50 for Year 3. The after-tax cost of capital is 10%.
- What is the approximate undepreciated capital cost (UCC)balance for the equipment at the beginning of Year 3?

Accepted Answer

A)  $7,076. 
B)  $8,325. 
C)  $31,450. 
D)  $47,175. 
A)  $7,076. 
B)  $8,325. 
C)  $31,450. 
D)  $47,175.

Question 4

The Morgan Company has been awarded a six-year contract to provide repair service to a commercial bus line. Morgan Company has gathered the following data associated with the items needed for this contract:
$\begin{array}{|l|r|}
\hline \text { Cost of the Special equipment needed now } & \$ 300,00 \
\hline \text { Working capital needed now } & \$ 80,000 \
\hline \text { Net annual operating cash inflows } & \$ 120,000 \
\hline \text { Equipment maintenance overhaul at the End of Four Years } & \$ 20,000 \
\hline \text { Salvage Value of the Equipment in six Years } & \$ 20,000 \
\hline
\end{array}$
The special equipment is in Class 7 with a maximum $15 \% \mathrm { CCA }$ rate. The income tax rate is $40 \%$, and Morgan's after-tax cost of capital is $14 \%$. At the end of six years, the working capital will be released for use elsewhere.
-What is the total cash outlay needed to be made now?

Accepted Answer

A)  $300,000. 
B)  $360,000. 
C)  $380,000. 
D)  $400,000. 
A)  $300,000. 
B)  $360,000. 
C)  $380,000. 
D)  $400,000.

Question 5

Information on four investment proposals is given below:
$\begin{array}{|l|r|r|}
\hline \text { Proposal } & \text { Investment } & \text { Net Present Value } \
\hline 1 & \$ 50,000 & \$ 30,000 \
\hline 2 & \$ 60,000 & \$ 24,000 \
\hline 3 & \$ 30,000 & \$ 15,000 \
\hline
\end{array}$
$$\begin{array} { | r | r |r |} 
\hline 4 & \$ 45 , 000 & \$ 9,000\\hline
\end{array}$$
What are preference rankings of the four proposals according to the profitability index?

Accepted Answer

A)  3, 4, 1, 2. 
B)  1, 2, 3, 4. 
C)  1, 3, 2, 4. 
D)  2, 1, 4, 3. 
A)  3, 4, 1, 2. 
B)  1, 2, 3, 4. 
C)  1, 3, 2, 4. 
D)  2, 1, 4, 3.

Which of the following items is NOT included in the formula for calculating the present value of the capital cost allowance (CCA)tax shield?

The release of working capital at the end of an investment project is a taxable cash inflow.

Information on four investment proposals is given below: Proposal Investment Net Present Value 1 \ 50,000 \ 30,000 2 \ 60,000 \ 24,000 3 \ 30,000 \ 15,000 4 \ 45,000 \ 9,000 What are preference rankings of the four proposals according to the profitability index?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: A Tool to Aid Decision Making

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Financial Statement Analysis

Filters

Exam 13: Capital Budgeting Decisions

Which of the following items is NOT included in the formula for calculating the present value of the capital cost allowance (CCA)tax shield?

The release of working capital at the end of an investment project is a taxable cash inflow.

Information on four investment proposals is given below: Proposal Investment Net Present Value 1 \ 50,000 \ 30,000 2 \ 60,000 \ 24,000 3 \ 30,000 \ 15,000 4 \ 45,000 \ 9,000 What are preference rankings of the four proposals according to the profitability index?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: A Tool to Aid Decision Making

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Financial Statement Analysis

Filters