Exam 13: Capital Budgeting Decisions

(Appendix 13A and 13B)A company needs an increase in working capital of $70,000 in a project that will last three years.The company's tax rate is 30%,and its discount rate is 8%.What is the approximate present value of the working capital to be released at the end of the project? (Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

Which of the following statements is(are)correct? I.Project A is acceptable according to the net present value method. II.Project A has an internal rate of return greater than 14%.

(Appendix 13B)Last year,the sales at Seidelman Company were $700,000 and were all cash sales.The company's tax-deductible expenses were $450,000 and were all cash expenses.The tax rate was 35%.What was the after-tax net cash inflow at Seidelman last year?

(Appendix 13B)If a firm acquires a depreciable asset on September 1,it can add only one-third of the capital cost of the asset to the undepreciated capital cost (UCC)in the calculation of the capital cost allowance (CCA)for the year.

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

(Appendix 13A)The following data concern an investment project: The working capital will be released for use elsewhere at the conclusion of the project.(Ignore income taxes in this problem. ) Required: Calculate the project's net present value and the internal rate of return.

(Appendix 13A)Arthur operates a part-time auto repair service.He estimates that a new diagnostic computer system will result in increased cash inflows of $2,100 in Year 1,$3,200 in Year 2,and $4,000 in Year 3.If Arthur's discount rate is 10%,what would be the maximum amount he should be willing to pay for the new computer system? (Ignore income taxes in this problem. )(Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

Which of the following statements about the evaluation of an investment having uneven cash flows using the payback method is correct?

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

(Appendix 13B)Capital cost allowance (CCA)deductions shield revenues from taxation and thereby lower the amount of taxes that a company must pay.

Which one of the following statements about the payback method of capital budgeting is correct?

(Appendix 13A)Sue Falls is the president of Sports,Inc.She is considering buying a new machine that would cost $14,125.Sue has determined that the new machine promises an internal rate of return of 12%,but Sue has misplaced the paper that gives the annual cost savings promised by the new machine.She does remember that the machine has a projected life of ten years.Based on these data,what are the annual cost savings? (Ignore income taxes in this problem. )

(Appendix 13A and 13B)What is the approximate present value of the after-tax net annual operating cash inflows for Project P? (Do not round your intermediate calculations. )

(Appendix 13A and 13B)Roy Company is trying to decide whether to invest in one of two projects: X or Z.Associated data for each investment project follow: The equipment for each project is in Class 22 with a 30% maximum CCA rate.The income tax rate is 30%.Roy's after-tax cost of capital is 12%. Required: a)Calculate the net present value of each project,and indicate which appears preferable in terms of net present value. b)Calculate the profitability index for each project,and indicate which project would be preferable using this investment criterion.

What is the simple rate of return on the initial investment?

Some investment projects require that a company expand its working capital to service the greater volume of business that will be generated.Under the net present value method,how should the investment of working capital be treated?

(Appendix 13A and 13B)A company anticipates a taxable cash receipt of $50,000 in year 4 of a project.The company's tax rate is 30%,and its discount rate is 12%.What is the approximate present value of this future cash flow? (Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

The net present value method of capital budgeting assumes that cash flows are reinvested at what rate?

(Appendix 13B)Assume the special equipment will have a zero salvage value (instead of $20,000)at the end of six years.The present value of the total tax savings for all years because of the CCA tax shield is closest to which of the following? (Do not round your intermediate calculations. )

(Appendix 13A and 13B)If Manti deducts the maximum CCA for tax purposes,what will be the approximate present value (as of January 2,Year 1)of the CCA tax shield for Year 2?(Do not round your intermediate calculations. )