Question 1

The level of incremental sales associated with introducing the new one hour photo service is closest to:

Accepted Answer

A) $90,000 
B) $150,000 
C) $60,000 
D) $120,000 
E) $0 
A) $90,000 
B) $150,000 
C) $60,000 
D) $120,000 
E) $0

Question 2

Use the table for the question(s)below.
  
-The balance sheet for a small firm is shown above.All amounts are in thousands of dollars.What is this firm's Net Working Capital?

Accepted Answer

A) $30,000 
B) $40,000 
C) $47,000 
D) $89,000 
E) $42,000 
A) $30,000 
B) $40,000 
C) $47,000 
D) $89,000 
E) $42,000

Question 3

An announcement by the government that they will decrease corporate marginal tax rates in the future would increase the capital cost allowance (CCA)tax shield.

Accepted Answer

A) True 
 B)False

Question 4

Use the information for the question(s)below.
Epiphany Industries is considering a new capital budgeting project that will last for three years.Epiphany plans on using a cost of capital of 12% to evaluate this project.Based on extensive research,it has prepared the following incremental cash flow projects:
  
-The free cash flow for the last year of Epiphany's project is closest to:

Accepted Answer

A) $48,123 
B) $35,532 
C) $32,225 
D) $43,000 
E) $34,253 
A) $48,123 
B) $35,532 
C) $32,225 
D) $43,000 
E) $34,253

Question 5

Why does the option to abandon a project have value?

Accepted Answer

The option to abandon a projec

Question 6

The CCA tax shield for the Sisyphean Corporation's project in the first year is closest to:

Accepted Answer

A) $8000 
B) $1575 
C) $2800 
D) $5200 
E) $4500 
A) $8000 
B) $1575 
C) $2800 
D) $5200 
E) $4500

Question 7

The CCA tax shield for the Sisyphean Corporation's project in the second year is closest to:

Accepted Answer

A) $4230 
B) $3150 
C) $7650 
D) $1575 
E) $2678 
A) $4230 
B) $3150 
C) $7650 
D) $1575 
E) $2678

Question 8

A company spends $20 million researching whether it is possible to create a durable plastic from the process waste from feedstock preparation.How should the $20 million best be considered?

Accepted Answer

A) as a sunk cost 
B) as an opportunity cost 
C) as a fixed overhead expense 
D) as a capital cost 
E) as a project externality 
A) as a sunk cost 
B) as an opportunity cost 
C) as a fixed overhead expense 
D) as a capital cost 
E) as a project externality

Question 9

A machine is purchased for $500,000 and is used through the end of Year 2.The machine falls under asset class 43 with a capital cost allowance (CCA)rate of 30%.At the end of Year 2,the machine is sold for $75,000.What is the present value of the lost CCA tax shields if the firm's marginal tax rate is 40% and its cost of capital is 5%?

Accepted Answer

A) $37,050 
B) $15,180 
C) $37,950 
D) $23,324 
E) $25,714 
A) $37,050 
B) $15,180 
C) $37,950 
D) $23,324 
E) $25,714

Question 10

Interest and other financing-related expenses are excluded when determining a project's unlevered net income.

Accepted Answer

A) True 
 B)False

Question 11

Cameron Industries is purchasing a new chemical vapour depositor in order to make silicon chips.It will cost $6 million to buy the machine and $10,000 to have it delivered and installed.Building a clean room in the plant for the machine will cost an additional $3 million.The machine is expected to have a working life of six years.Which of these activities will be reported as an operating expense?

Accepted Answer

A) the delivery and install cost only 
B) the cost of the depositor only 
C) the redesign of the plant only 
D) the delivery and install cost and the cost of the depositor 
E) the install cost only 
A) the delivery and install cost only 
B) the cost of the depositor only 
C) the redesign of the plant only 
D) the delivery and install cost and the cost of the depositor 
E) the install cost only

Question 12

Use the figure for the question(s)below.  
-A consumer good company is developing a new brand of organic toothpaste.Above is the sensitivity analysis for this product.The assumptions regarding which parameter should be scrutinized most carefully in the estimation process?

Accepted Answer

A) units sold 
B) sales price 
C) cost of goods 
D) cost of capital 
E) net working capital 
A) units sold 
B) sales price 
C) cost of goods 
D) cost of capital 
E) net working capital

Question 13

The loss in sales of an existing product is a sink cost when assessing the cost of a new product if:

Accepted Answer

A) A competitor's product would have reduced the sales of the existing product. 
B) The existing product is more costly to produce than the new product. 
C) The existing product is less costly to produce than the new product 
D) The loss in any sales should never be considered a sunk cost. 
E) A competitor's product is not expected to create a loss in sales of the existing product. 
A) A competitor's product would have reduced the sales of the existing product. 
B) The existing product is more costly to produce than the new product. 
C) The existing product is less costly to produce than the new product 
D) The loss in any sales should never be considered a sunk cost. 
E) A competitor's product is not expected to create a loss in sales of the existing product.

Question 14

Athabasca Ag is purchasing 1,000 grain bins at a cost of $40,000 each.Each bin also has a $5,000 delivery and installation cost,and the bins have a capital cost allowance (CCA)rate of 25%.The bins are expected to increase gross profit by $12 million per year,starting at the end of the first year,with annual associated costs of $1.5 million per year.Athabasca has a marginal tax rate of 30%.What are the incremental free cash flows associated with the new bins in year 2?

Accepted Answer

A) $7.35 million 
B) $10.3 million 
C) $9.04 million 
D) $12 million 
E) $9.5 million 
A) $7.35 million 
B) $10.3 million 
C) $9.04 million 
D) $12 million 
E) $9.5 million

Question 15

Use the information for the question(s)below.
Shepard Industries is evaluating a proposal to expand its current distribution facilities.Management has projected the project will produce the following cash flows for the first two years (in millions).
  
-The CCA tax shield for Shepard Industries project in year 1 is closest to:

Accepted Answer

A) $84 
B) $168 
C) $96 
D) $72 
E) $100 
A) $84 
B) $168 
C) $96 
D) $72 
E) $100

Question 16

Athabasca Ag is purchasing 1,000 grain bins at a cost of $40,000 each.Each bin also has a $5,000 delivery and installation cost,and the bins have a capital cost allowance (CCA)rate of 25%.What will be the incremental undepreciated capital cost (UCC)for year 2?

Accepted Answer

A) $39,375,000 
B) $45,000,000 
C) $16,875,000 
D) $22,500,000 
E) $5,625,000 
A) $39,375,000 
B) $45,000,000 
C) $16,875,000 
D) $22,500,000 
E) $5,625,000

Question 17

Longbow Lumber is purchasing a new horizontal resaw at a cost of $375,000.There is an additional $10,000 delivery and installation cost.The machine has a capital cost allowance (CCA)rate of 20%.What is the incremental undepreciated capital cost (UCC)for year 2?

Accepted Answer

A) $375,000 
B) $337,500 
C) $385,000 
D) $346,500 
E) $192,500 
A) $375,000 
B) $337,500 
C) $385,000 
D) $346,500 
E) $192,500

Question 18

Longbow Lumber is purchasing a new horizontal resaw at a cost of $390,000.There is an additional $20,000 delivery and installation cost.The machine has a capital cost allowance (CCA)rate of 15%.What will be the CCA deduction for year 1?

Accepted Answer

A) $195,000 
B) $205,000 
C) $61,500 
D) $29,250 
E) $30,750 
A) $195,000 
B) $205,000 
C) $61,500 
D) $29,250 
E) $30,750

Question 19

You are considering adding a microbrewery onto one of your firm's existing restaurants.This will entail an increase in inventory of $8000,an increase in accounts payable of $2500,and an increase in property,plant,and equipment of $40,000.All other accounts will remain unchanged.The change in net working capital resulting from the addition of the microbrewery is:

Accepted Answer

A) $45,500 
B) $10,500 
C) $6,500 
D) $5,500 
E) $0 
A) $45,500 
B) $10,500 
C) $6,500 
D) $5,500 
E) $0

Question 20

If a business owner is using the extra space at home for his business,does it imply a zero opportunity cost for the space?

Accepted Answer

As long as there is an alterna

The level of incremental sales associated with introducing the new one hour photo service is closest to:

Use the table for the question(s)below. -The balance sheet for a small firm is shown above.All amounts are in thousands of dollars.What is this firm's Net Working Capital?

An announcement by the government that they will decrease corporate marginal tax rates in the future would increase the capital cost allowance (CCA)tax shield.

Why does the option to abandon a project have value?

The CCA tax shield for the Sisyphean Corporation's project in the first year is closest to:

The CCA tax shield for the Sisyphean Corporation's project in the second year is closest to:

A company spends $20 million researching whether it is possible to create a durable plastic from the process waste from feedstock preparation.How should the $20 million best be considered?

Interest and other financing-related expenses are excluded when determining a project's unlevered net income.

Use the figure for the question(s)below. -A consumer good company is developing a new brand of organic toothpaste.Above is the sensitivity analysis for this product.The assumptions regarding which parameter should be scrutinized most carefully in the estimation process?

The loss in sales of an existing product is a sink cost when assessing the cost of a new product if:

Athabasca Ag is purchasing 1,000 grain bins at a cost of $40,000 each.Each bin also has a $5,000 delivery and installation cost,and the bins have a capital cost allowance (CCA)rate of 25%.What will be the incremental undepreciated capital cost (UCC)for year 2?

Longbow Lumber is purchasing a new horizontal resaw at a cost of $375,000.There is an additional $10,000 delivery and installation cost.The machine has a capital cost allowance (CCA)rate of 20%.What is the incremental undepreciated capital cost (UCC)for year 2?

Longbow Lumber is purchasing a new horizontal resaw at a cost of $390,000.There is an additional $20,000 delivery and installation cost.The machine has a capital cost allowance (CCA)rate of 15%.What will be the CCA deduction for year 1?

If a business owner is using the extra space at home for his business,does it imply a zero opportunity cost for the space?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Exam 9: Fundamentals of Capital Budgeting

The level of incremental sales associated with introducing the new one hour photo service is closest to:

Use the table for the question(s)below. -The balance sheet for a small firm is shown above.All amounts are in thousands of dollars.What is this firm's Net Working Capital?

An announcement by the government that they will decrease corporate marginal tax rates in the future would increase the capital cost allowance (CCA)tax shield.

Why does the option to abandon a project have value?

The CCA tax shield for the Sisyphean Corporation's project in the first year is closest to:

The CCA tax shield for the Sisyphean Corporation's project in the second year is closest to:

A company spends $20 million researching whether it is possible to create a durable plastic from the process waste from feedstock preparation.How should the $20 million best be considered?

Interest and other financing-related expenses are excluded when determining a project's unlevered net income.

Use the figure for the question(s)below. -A consumer good company is developing a new brand of organic toothpaste.Above is the sensitivity analysis for this product.The assumptions regarding which parameter should be scrutinized most carefully in the estimation process?

The loss in sales of an existing product is a sink cost when assessing the cost of a new product if:

Athabasca Ag is purchasing 1,000 grain bins at a cost of $40,000 each.Each bin also has a $5,000 delivery and installation cost,and the bins have a capital cost allowance (CCA)rate of 25%.What will be the incremental undepreciated capital cost (UCC)for year 2?

Longbow Lumber is purchasing a new horizontal resaw at a cost of $375,000.There is an additional $10,000 delivery and installation cost.The machine has a capital cost allowance (CCA)rate of 20%.What is the incremental undepreciated capital cost (UCC)for year 2?

Longbow Lumber is purchasing a new horizontal resaw at a cost of $390,000.There is an additional $20,000 delivery and installation cost.The machine has a capital cost allowance (CCA)rate of 15%.What will be the CCA deduction for year 1?

If a business owner is using the extra space at home for his business,does it imply a zero opportunity cost for the space?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters