Question 1

An asset with a book value of $320,000 is sold for $560,000.The tax rate is 20%.What is the tax effect of the gain?

Accepted Answer

A) $48,000 cash outflow 
B) $64,000 cash outflow 
C) $112,000 cash outflow 
D) $192,000 cash outflow 
A) $48,000 cash outflow 
B) $64,000 cash outflow 
C) $112,000 cash outflow 
D) $192,000 cash outflow

Question 2

Dove Company pays taxes of 25% on their first $30,000 of pretax income and 40% on any taxable income in excess of $30,000.The current pretax income is $45,000.What is the marginal tax rate for Dove Company?

Accepted Answer

A) 15% 
B) 25% 
C) 40% 
D) 65% 
A) 15% 
B) 25% 
C) 40% 
D) 65%

Question 3

Cowboy Company wishes to sell a machine with a book value of $40,000.The income tax rate is 30%.The machine is sold for $50,000.
Required:
A)What is the net after-tax cash flow from the sale of the machine?
B)If the machine is sold for $20,000,what is the net after-tax cash flow from the sale of the machine?

Accepted Answer

A)Net cash flow: $50

Question 4

If the internal rate of return on a project exceeds the minimum desired rate of return,then the NPV is positive.

Accepted Answer

A) True 
 B)False

Question 5

Gonzalez Company is considering the purchase of equipment for $600,000.The equipment will have a ten year life with no terminal salvage value.Straight-line depreciation will be used for tax purposes.It is expected that the equipment will generate annual sales of $400,000 and annual production costs,exclusive of depreciation,of $300,000.The tax rate is 40%.What is the net annual after-tax cash flow from the equipment?

Accepted Answer

A) $64,000 cash inflow 
B) $72,000 cash inflow 
C) $84,000 cash inflow 
D) $96,000 cash inflow 
A) $64,000 cash inflow 
B) $72,000 cash inflow 
C) $84,000 cash inflow 
D) $96,000 cash inflow

Question 6

The marginal income tax rate is the tax rate paid on additional amounts of pretax income.

Accepted Answer

A) True 
 B)False

Question 7

When choosing among several investments,managers should pick the project with the lowest net present value.

Accepted Answer

A) True 
 B)False

Question 8

A manager is considering the following investment:   Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

Accepted Answer

A) $(492) 
B) $90,270 
C) $180,000 
D) $360,270 
A) $(492) 
B) $90,270 
C) $180,000 
D) $360,270

Question 9

What is the first step in applying the net-present-value method to investment projects?

Accepted Answer

A) Identify the amount and timing of relevant future cash inflows. 
B) Identify the amount and timing of relevant future cash inflows and outflows. 
C) Find the present value of each expected cash flow. 
D) Find the discount rate to use for the project. 
A) Identify the amount and timing of relevant future cash inflows. 
B) Identify the amount and timing of relevant future cash inflows and outflows. 
C) Find the present value of each expected cash flow. 
D) Find the discount rate to use for the project.

Question 10

Joshua Company will purchase a van for $40,000.It will have a depreciable life of 5 years and no terminal salvage value.Assume a tax rate of 20% and a required after-tax rate of return of 12%.The company uses straight-line depreciation for tax purposes.What is the present value of the after-tax savings from depreciation expense in year 1? (The present value of a single sum for one period at 12% is 0.8929.)

Accepted Answer

A) $857.18 
B) $1,428.64 
C) $1,600.00 
D) $8,000.00 
A) $857.18 
B) $1,428.64 
C) $1,600.00 
D) $8,000.00

Question 11

In net present value analysis,the minimum desired rate of return for an investment project depends on the ________ of a proposed project.

Accepted Answer

A) expected return 
B) desired return 
C) risk 
D) payback period 
A) expected return 
B) desired return 
C) risk 
D) payback period

Question 12

The accounting rate of return model multiplies the initial investment by the annual operating income.

Accepted Answer

A) True 
 B)False

Question 13

When making capital budgeting decisions,the manager should utilize the marginal tax rate for the company instead of the average tax rate.

Accepted Answer

A) True 
 B)False

Question 14

When using accelerated depreciation methods,most of the depreciation taken on an asset occurs at the end of its life.

Accepted Answer

A) True 
 B)False

Question 15

The ________ cannot be used to compare more than two investment alternatives.

Accepted Answer

A) total project approach 
B) sensitivity analysis 
C) payback method 
D) differential approach 
A) total project approach 
B) sensitivity analysis 
C) payback method 
D) differential approach

Question 16

Lonesome Company is required to pay taxes of 25% on income up to $20,000 and 35% on any income in excess of $20,000.The company has pretax income of $80,000.What is the average tax rate for Lonesome Company?

Accepted Answer

A) 25.0% 
B) 26.5% 
C) 30.0% 
D) 32.5% 
A) 25.0% 
B) 26.5% 
C) 30.0% 
D) 32.5%

Question 17

Assume the net present value method is used to evaluate investment opportunities.A manager is faced with several investments,but only has funding for one investment.Which investment should be chosen?

Accepted Answer

A) the investment with the lowest net present value 
B) the investment with a net present value equal to zero 
C) the investment with a negative net present value 
D) the investment with the largest net present value 
A) the investment with the lowest net present value 
B) the investment with a net present value equal to zero 
C) the investment with a negative net present value 
D) the investment with the largest net present value

Question 18

In net present value method,the only relevant operating cash flows are the ones that differ among alternatives.

Accepted Answer

A) True 
 B)False

Question 19

An asset with a book value of $50,000 is sold for $30,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

Accepted Answer

A) $10,000 cash outflow 
B) $10,000 cash inflow 
C) $25,000 cash inflow 
D) $35,000 cash inflow 
A) $10,000 cash outflow 
B) $10,000 cash inflow 
C) $25,000 cash inflow 
D) $35,000 cash inflow

Question 20

A manager is considering the following investment:   Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

Accepted Answer

A) $(123,652) 
B) $18,952 
C) $60,000 
D) $198,952 
A) $(123,652) 
B) $18,952 
C) $60,000 
D) $198,952

An asset with a book value of $320,000 is sold for $560,000.The tax rate is 20%.What is the tax effect of the gain?

Dove Company pays taxes of 25% on their first $30,000 of pretax income and 40% on any taxable income in excess of $30,000.The current pretax income is $45,000.What is the marginal tax rate for Dove Company?

If the internal rate of return on a project exceeds the minimum desired rate of return,then the NPV is positive.

The marginal income tax rate is the tax rate paid on additional amounts of pretax income.

When choosing among several investments,managers should pick the project with the lowest net present value.

A manager is considering the following investment: Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

What is the first step in applying the net-present-value method to investment projects?

In net present value analysis,the minimum desired rate of return for an investment project depends on the ________ of a proposed project.

The accounting rate of return model multiplies the initial investment by the annual operating income.

When making capital budgeting decisions,the manager should utilize the marginal tax rate for the company instead of the average tax rate.

When using accelerated depreciation methods,most of the depreciation taken on an asset occurs at the end of its life.

The ________ cannot be used to compare more than two investment alternatives.

Lonesome Company is required to pay taxes of 25% on income up to $20,000 and 35% on any income in excess of $20,000.The company has pretax income of $80,000.What is the average tax rate for Lonesome Company?

Assume the net present value method is used to evaluate investment opportunities.A manager is faced with several investments,but only has funding for one investment.Which investment should be chosen?

In net present value method,the only relevant operating cash flows are the ones that differ among alternatives.

An asset with a book value of $50,000 is sold for $30,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

A manager is considering the following investment: Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Exam 11: Capital Budgeting

An asset with a book value of $320,000 is sold for $560,000.The tax rate is 20%.What is the tax effect of the gain?

Dove Company pays taxes of 25% on their first $30,000 of pretax income and 40% on any taxable income in excess of $30,000.The current pretax income is $45,000.What is the marginal tax rate for Dove Company?

If the internal rate of return on a project exceeds the minimum desired rate of return,then the NPV is positive.

The marginal income tax rate is the tax rate paid on additional amounts of pretax income.

When choosing among several investments,managers should pick the project with the lowest net present value.

A manager is considering the following investment: Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

What is the first step in applying the net-present-value method to investment projects?

In net present value analysis,the minimum desired rate of return for an investment project depends on the ________ of a proposed project.

The accounting rate of return model multiplies the initial investment by the annual operating income.

When making capital budgeting decisions,the manager should utilize the marginal tax rate for the company instead of the average tax rate.

When using accelerated depreciation methods,most of the depreciation taken on an asset occurs at the end of its life.

The ________ cannot be used to compare more than two investment alternatives.

Lonesome Company is required to pay taxes of 25% on income up to $20,000 and 35% on any income in excess of $20,000.The company has pretax income of $80,000.What is the average tax rate for Lonesome Company?

Assume the net present value method is used to evaluate investment opportunities.A manager is faced with several investments,but only has funding for one investment.Which investment should be chosen?

In net present value method,the only relevant operating cash flows are the ones that differ among alternatives.

An asset with a book value of $50,000 is sold for $30,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

A manager is considering the following investment: Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters