Exam 11: Capital Budgeting

A five-year MACRS asset that cost $50,000 was sold at the end of its useful life for $20,000.The book value of the asset at the time of sale was $0.The asset had no expected terminal value.The tax rate is 20%.What is the net after-tax cash effect from the sale of the asset?

Pilot Company will purchase a truck for $80,000.The truck's depreciable life is 5 years.The truck has no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The company uses the straight-line method of depreciation for tax purposes.What is the annual after-tax cash flow from depreciation expense?

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

The internal rate of return model determines the ________ at which the net present value of an investment project equals ________.

A plant asset with a book value of $320,000 is sold for $560,000.The tax rate is 20%.What is the net after-tax cash inflow resulting from this sale?

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

Managers who are evaluated based on the accounting rate of return model are reluctant to use ________ for capital budgeting decisions.

A plant asset of $180,000 is expected to generate $80,000 in operating cash savings (excluding depreciation expense)annually for three years.Assume straight-line depreciation is used.The useful life is 3 years.The asset has no expected residual value.Ignore income taxes.The accounting rate of return based on the initial investment is ________.

The annual after-tax cash operating inflows of a newly purchased machine are expected to be $60,000.The expected useful life of the machine is 5 years.The after-tax minimum desired rate of return,including an inflation factor,is 25%.The inflation rate is 10% per year.After adjusting for inflation,what is the rate of return used to find the net present value of the machine?

In the capital budgeting process,accountants are NOT involved in ________.

Spitzer Company is considering two investments.If the differential approach to investment decisions is used,which of the following steps is NOT used?

A deduction for depreciation expense lowers a company's tax liability.

A plant asset with a book value of $40,000 is sold for $10,000.The applicable tax rate is 20%.The net after-tax cash effect of the sale is a ________.

Which of the following items below does NOT require an explicit adjustment for inflation?

If the net present value of an investment project is positive,then the project is ________.If the net present value of an investment project is negative,then the project is ________.

The minimum desired rate of return for an investment under the NPV method is based on the cost of capital.

Stanley Company has obtained the following information about a proposed project: Annual cash operating savings (excluding depreciation) for 5 years (end of year) \ 50,000 Depreciation expense per year for tax purposes \ 33,000 Estimated salvage value in 5 years \ 10,000 Cost of equipment \ 175,000 Required rate of return 10\% Income taxrate 40\% Estimated useful life (in years) 5 Depreciation method for tax purposes Straight-line Present value of ordinary annuity of one at 10 \% for 5 periods 3.79.8 Present value of one at 10\% for 5 periods 0.6209 Required: A) What is the NPV of the project? B) Should the project be undertaken?

You can receive $10,000 today or $3,000 per year at the end of each year for the next five years.If the required rate of return is 10%,what option should be selected? (The present value of an ordinary annuity of one at 10% for five periods is 3.7908.The present value of one at 10% for five periods is 0.6209.)

Reasons for the post-audit of an investment project do NOT include ________.

The internal rate of return method and the ________ method usually result in the same investment decisions.