Question 1

(Appendix 13B)At what amount should the capital cost allowance (CCA)tax shield be included in the calculation of the net present value of an investment project?

Accepted Answer

A)  The amount of the CCA with no adjustment for taxes. 
B)  The amount of the CCA multiplied by one minus the tax rate. 
C)  The amount of the CCA multiplied by the tax rate. 
D)  Zero,since the amount of CCA is not relevant to the calculation of net present value. 
A)  The amount of the CCA with no adjustment for taxes. 
B)  The amount of the CCA multiplied by one minus the tax rate. 
C)  The amount of the CCA multiplied by the tax rate. 
D)  Zero,since the amount of CCA is not relevant to the calculation of net present value.

Question 2

The payback method of making capital budgeting decisions gives full consideration to the time value of money.

Accepted Answer

A) True 
 B)False

Question 3

(Appendix 13A)Stratford Company purchased a machine with an estimated useful life of seven years.The machine will generate cash inflows of $90,000 each year over the next seven years.If the machine has no salvage value at the end of seven years,and assuming the company's discount rate is 10%,what is the purchase price of the machine if the net present value of the investment is $170,000? (Ignore income taxes in this problem. )(Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

Accepted Answer

A)  $170,000. 
B)  $221,950. 
C)  $268,158. 
D)  $608,157. 
A)  $170,000. 
B)  $221,950. 
C)  $268,158. 
D)  $608,157.

Question 4

(Appendix 13A)What would be the net present value of this investment? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

Accepted Answer

A)  ($14,350). 
B)  $77,200. 
C)  $107,228. 
D)  $200,000. 
A)  ($14,350). 
B)  $77,200. 
C)  $107,228. 
D)  $200,000.

Question 5

(Appendix 13B)What is the approximate present value of the tax savings (for all years)due to the CCA tax shield for Project P? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

Accepted Answer

A)  $29,228. 
B)  $30,068. 
C)  $30,908. 
D)  $31,500. 
A)  $29,228. 
B)  $30,068. 
C)  $30,908. 
D)  $31,500.

Question 6

(Appendix 13A)Monson Company is considering three investment opportunities with cash flows as described below: (Ignore income taxes in this problem. )   
Required:
Calculate the net present value of each project assuming Monson Company uses a 12% discount rate.

Accepted Answer

a)NPV = $5,397.51,b)NPV = $(9,

Question 7

(Appendix 13A)In order to receive $12,000 at the end of three years and $10,000 at the end of five years,how much must be invested now if you can earn 14% rate of return? (Ignore income taxes in this problem. )(Round your PV factor to 5 decimal places and final answer to nearest whole dollar amount. )

Accepted Answer

A)  $8,100. 
B)  $12,978. 
C)  $13,293. 
D)  $32,054. 
A)  $8,100. 
B)  $12,978. 
C)  $13,293. 
D)  $32,054.

Question 8

(Appendix 13A)Prince Company's required rate of return is 10%.The company is considering the purchase of three machines,as indicated below.Consider each machine independently.(Ignore income taxes in this problem. )
Required:
a)Machine A will cost $25,000 and will have a useful life of 15 years.Its salvage value will be $1,000,and cost savings are projected at $3,500 per year.Calculate the machine's net present value.
b)How much should Prince Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for eight years?
c)Machine C has a projected life of ten years.What is the machine's internal rate of return if it costs $31,296 and will save $6,000 annually in cash operating costs? Would you recommend to Prince Company to purchase Machine C? Explain.

Accepted Answer

a) @#IMG-DLM& 
NPV = $1,860.67.Calculated using th

Question 9

(Appendix 13A and 13B)Suppose that your company has ample taxable income to take advantage of capital cost allowance (CCA)deductions and has the option to use either accelerated or straight-line method to calculate the CCA deductions.
Required:
Which method would you prefer? Why?

Accepted Answer

The accelerated method of capital cost a

Question 10

(Appendix 13A)The net present value of Project B is closest to which of the following? (Do not round your intermediate calculations. )

Accepted Answer

A)  $54,990. 
B)  $77,769. 
C)  $57,268. 
D)  $127,805. 
A)  $54,990. 
B)  $77,769. 
C)  $57,268. 
D)  $127,805.

Question 11

(Appendix 13A and 13B)A company anticipates a tax-deductible cash expense of $40,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 10%.What is the approximate present value of this future cash outflow? Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

Accepted Answer

A)  $28,000. 
B)  $23,140. 
C)  $12,000. 
D)  $9,917. 
A)  $28,000. 
B)  $23,140. 
C)  $12,000. 
D)  $9,917.

Question 12

What is the payback period for this investment? (Round your answer to the one decimal place. )

Accepted Answer

A)  2.1 years. 
B)  2.3 years. 
C)  2.8 years. 
D)  4.2 years. 
A)  2.1 years. 
B)  2.3 years. 
C)  2.8 years. 
D)  4.2 years.

Question 13

(Appendix 13B)What is the maximum amount of CCA that the company will be able to deduct for tax purposes for Year 2?

Accepted Answer

A)  $4,995. 
B)  $5,100. 
C)  $5,550. 
D)  $6,000. 
A)  $4,995. 
B)  $5,100. 
C)  $5,550. 
D)  $6,000.

Question 14

(Appendix 13B)What is the approximate present value of the tax savings for all years because of the CCA tax shield? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

Accepted Answer

A)  $7,786. 
B)  $6,975. 
C)  $8,245. 
D)  $8,438. 
A)  $7,786. 
B)  $6,975. 
C)  $8,245. 
D)  $8,438.

Question 15

What would be the simple rate of return on the investment?

Accepted Answer

A)  10%. 
B)  15%. 
C)  25%. 
D)  35%. 
A)  10%. 
B)  15%. 
C)  25%. 
D)  35%.

Question 16

(Appendix 13B)What was the after-tax net cash inflow from all sources for Year 1?

Accepted Answer

A)  $104,000. 
B)  $156,000. 
C)  $180,000. 
D)  $216,000. 
A)  $104,000. 
B)  $156,000. 
C)  $180,000. 
D)  $216,000.

Question 17

(Appendix 13A and 13B)A company anticipates a capital cost allowance (CCA)deduction of $70,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 14%.What is the approximate present value of the CCA tax shield resulting from this deduction? (Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

Accepted Answer

A)  $16,159. 
B)  $21,000. 
C)  $37,704. 
D)  $49,000. 
A)  $16,159. 
B)  $21,000. 
C)  $37,704. 
D)  $49,000.

Question 18

(Appendix 13A)The net present value of this investment is closest to which of the following? (Do not round your intermediate calculations. )

Accepted Answer

A)  $20,444. 
B)  $81,025. 
C)  $50,000. 
D)  $80,000. 
A)  $20,444. 
B)  $81,025. 
C)  $50,000. 
D)  $80,000.

Question 19

(Appendix 13A)Benz Company is considering the purchase of a machine that costs $100,000 and has a useful life of 18 years.The company's required discount rate is 12%.If the machine's net present value is $5,850,what must be the annual cash inflows associated with the machine,rounded to the nearest whole dollar,do not round your intermediate calculations? (Ignore income taxes in this problem. )

Accepted Answer

A)  $13,760. 
B)  $14,601. 
C)  $42,413. 
D)  They are impossible to determine from the data given. 
A)  $13,760. 
B)  $14,601. 
C)  $42,413. 
D)  They are impossible to determine from the data given.

Question 20

(Appendix 13A)Boston Company is contemplating the purchase of a new machine on which the following information has been gathered:  
The company's discount rate is 16%,and the machine will be depreciated using the straight-line method.Given these data,what is the net present value of the machine to the nearest dollar,by not rounding intermediate calculations? (Ignore income taxes in this problem. )

Accepted Answer

A)  ($26,100). 
B)  ($23,900). 
C)  $0. 
D)  $26,100. 
A)  ($26,100). 
B)  ($23,900). 
C)  $0. 
D)  $26,100.

(Appendix 13B)At what amount should the capital cost allowance (CCA)tax shield be included in the calculation of the net present value of an investment project?

The payback method of making capital budgeting decisions gives full consideration to the time value of money.

(Appendix 13A)What would be the net present value of this investment? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

(Appendix 13B)What is the approximate present value of the tax savings (for all years)due to the CCA tax shield for Project P? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

(Appendix 13A)Monson Company is considering three investment opportunities with cash flows as described below: (Ignore income taxes in this problem. ) Required: Calculate the net present value of each project assuming Monson Company uses a 12% discount rate.

(Appendix 13A and 13B)Suppose that your company has ample taxable income to take advantage of capital cost allowance (CCA)deductions and has the option to use either accelerated or straight-line method to calculate the CCA deductions. Required: Which method would you prefer? Why?

(Appendix 13A)The net present value of Project B is closest to which of the following? (Do not round your intermediate calculations. )

What is the payback period for this investment? (Round your answer to the one decimal place. )

(Appendix 13B)What is the maximum amount of CCA that the company will be able to deduct for tax purposes for Year 2?

(Appendix 13B)What is the approximate present value of the tax savings for all years because of the CCA tax shield? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

What would be the simple rate of return on the investment?

(Appendix 13B)What was the after-tax net cash inflow from all sources for Year 1?

(Appendix 13A)The net present value of this investment is closest to which of the following? (Do not round your intermediate calculations. )

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

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Exam 13: Capital Budgeting Decisions

(Appendix 13B)At what amount should the capital cost allowance (CCA)tax shield be included in the calculation of the net present value of an investment project?

The payback method of making capital budgeting decisions gives full consideration to the time value of money.

(Appendix 13A)What would be the net present value of this investment? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

(Appendix 13B)What is the approximate present value of the tax savings (for all years)due to the CCA tax shield for Project P? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

(Appendix 13A)Monson Company is considering three investment opportunities with cash flows as described below: (Ignore income taxes in this problem. ) Required: Calculate the net present value of each project assuming Monson Company uses a 12% discount rate.

(Appendix 13A and 13B)Suppose that your company has ample taxable income to take advantage of capital cost allowance (CCA)deductions and has the option to use either accelerated or straight-line method to calculate the CCA deductions. Required: Which method would you prefer? Why?

(Appendix 13A)The net present value of Project B is closest to which of the following? (Do not round your intermediate calculations. )

What is the payback period for this investment? (Round your answer to the one decimal place. )

(Appendix 13B)What is the maximum amount of CCA that the company will be able to deduct for tax purposes for Year 2?

(Appendix 13B)What is the approximate present value of the tax savings for all years because of the CCA tax shield? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

What would be the simple rate of return on the investment?

(Appendix 13B)What was the after-tax net cash inflow from all sources for Year 1?

(Appendix 13A)The net present value of this investment is closest to which of the following? (Do not round your intermediate calculations. )

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 Online

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