Question 1

Which term describes the interest rate used in computing the present value of future cash flows?

Accepted Answer

A) applicable treasury rate 
B) discount rate 
C) income tax rate 
D) borrowing rate. 
A) applicable treasury rate 
B) discount rate 
C) income tax rate 
D) borrowing rate.

Question 2

The terminal cash flows associated with an investment project include which of the following?

Accepted Answer

A) income tax effects resulting from periodic cash flows. 
B) loss in tax savings from lost depreciation. 
C) tax loss on disposal of equipment. 
D) all of the above. 
A) income tax effects resulting from periodic cash flows. 
B) loss in tax savings from lost depreciation. 
C) tax loss on disposal of equipment. 
D) all of the above.

Question 3

At the end of a five-year life,a company will dispose of an asset and recognize a gain of $6,000.If the company's cost of capital is 15 percent and its tax rate is 30 percent,what is the present value of the future cash flow?

Accepted Answer

A) $14,078. 
B) $6,000. 
C) $2,087. 
D) $895. 
A) $14,078. 
B) $6,000. 
C) $2,087. 
D) $895.

Question 4

Which of the following are steps needed for using the net present value method for making long-term decisions using discounted cash flows?

Accepted Answer

A) estimate the amounts of future cash inflows and future cash outflows in each period for each alternative under consideration. 
B) discount the future cash flows to the present using the project's discount rate. 
C) accept or reject the proposed project,or select one from a set of mutually exclusive projects. 
D) all of the above. 
A) estimate the amounts of future cash inflows and future cash outflows in each period for each alternative under consideration. 
B) discount the future cash flows to the present using the project's discount rate. 
C) accept or reject the proposed project,or select one from a set of mutually exclusive projects. 
D) all of the above.

Question 5

Wilcox Company is considering an investment that will generate cash revenues of $120,000 per year for 8 years,and have cash expenses of $60,000 per year for 8 years.The cost of the asset is $120,000,and it will be depreciated using straight-line depreciation over its 8 year life.Berringer pays income taxes at a rate of 30%.The cost of capital is 12%
Required:
a.Prepare an analysis showing the annual after tax cash flow associated with this asset.
b.Compute the net present value of this investment using the cash flow you computed in a above.

Accepted Answer

a.
 @#IMG-DLM&_TB2144_00 b.($1

Question 6

When using the internal rate of return to evaluate investment alternatives,which rate would analysts specify?

Accepted Answer

A) hurdle rate. 
B) Federal funds rate. 
C) prime interest rate. 
D) time-adjusted rate. 
A) hurdle rate. 
B) Federal funds rate. 
C) prime interest rate. 
D) time-adjusted rate.

Question 7

The periodic cash flows associated with an investment project include which of the following?

Accepted Answer

A) savings in taxes caused by deductibility of depreciation on tax return. 
B) income tax effect of gain(loss)on disposal of existing assets. 
C) asset and freight costs. 
D) all of the above. 
A) savings in taxes caused by deductibility of depreciation on tax return. 
B) income tax effect of gain(loss)on disposal of existing assets. 
C) asset and freight costs. 
D) all of the above.

Question 8

Mercken Industries
Mercken Industries is contemplating four projects: Project P,Project Q,Project R,and Project S.The capital costs and estimated after-tax net cash flows of each mutually exclusive project are listed below.Mercken's desired after-tax opportunity cost is 12 percent,and the company has a capital budget for the year of $450,000.Idle funds cannot be reinvested at greater than 12 percent.

Refer to Mercken Industries.If Merken can only accept one project,which will the company choose?

Accepted Answer

Project Q because it has the highest int

Question 9

Explain the application of the internal rate of return method of assessing investment alternatives.

Accepted Answer

The internal rate of return (IRR)method,

Question 10

Feed the Hungry Foundation
Feed the Hungry Foundation is a non-profit organization that has a cost of capital of 10 percent.The foundation is considering the replacement of a piece of equipment.The old machine has a book value of $3,000 and a remaining estimated life of 5 years with no salvage value at that time.The salvage value of the old machine is currently $1,500.The new equipment will cost $10,000.It has an estimated life of 5 years with no salvage value then.Annual cash operating costs are $4,000 for the old machine and $2,000 for the new machine.
Refer to Feed the Hungry Foundation.What is the present value of salvage value of the old machine if it is replaced now?

Accepted Answer

The answer of Feed the Hungry Foundation
Feed the Hungry Foundation...

Question 11

Managers are often correct that the company would benefit from advanced manufacturing technology.However,the present value of future cash flows analysis usually results in a negative net present value for the investment because of the exclusion of benefits that are difficult to quantify such as

Accepted Answer

A) greater flexibility in the production process. 
B) shorter cycle times and lead times. 
C) reduction of non-value-added costs. 
D) all of the above. 
A) greater flexibility in the production process. 
B) shorter cycle times and lead times. 
C) reduction of non-value-added costs. 
D) all of the above.

Question 12

Which of the following is an assumption of capital budgeting?

Accepted Answer

A) The firm can raise new funds at the same opportunity costs as the opportunity cost of the funds it already has on hand. 
B) The firm can raise new funds at the 30-year Federal funds rate. 
C) The firm can raise new funds at the prime interest rate. 
D) The firm can raise new funds at the same interest rate as the mean of the interest rates of the funds it already has on hand. 
A) The firm can raise new funds at the same opportunity costs as the opportunity cost of the funds it already has on hand. 
B) The firm can raise new funds at the 30-year Federal funds rate. 
C) The firm can raise new funds at the prime interest rate. 
D) The firm can raise new funds at the same interest rate as the mean of the interest rates of the funds it already has on hand.

Question 13

What is the process by which a firm considering acquiring a new plant or new equipment must decide whether to make the investment,then decide how to raise the funds required for the investment?

Accepted Answer

A) zero-based budgeting. 
B) capital budgeting. 
C) annual budgeting. 
D) management by objectives. 
A) zero-based budgeting. 
B) capital budgeting. 
C) annual budgeting. 
D) management by objectives.

Question 14

Which statement is true concerning depreciation?

Accepted Answer

A) Depreciation is not a cash flow and does not affect the tax cash flow. 
B) Depreciation is not a cash flow and does affect the tax cash flow. 
C) Depreciation is a cash flow and does not affect the tax cash flow. 
D) Depreciation is a cash flow and does affect the tax cash flow. 
A) Depreciation is not a cash flow and does not affect the tax cash flow. 
B) Depreciation is not a cash flow and does affect the tax cash flow. 
C) Depreciation is a cash flow and does not affect the tax cash flow. 
D) Depreciation is a cash flow and does affect the tax cash flow.

Question 15

In which area will analysts likely err when making capital investment decisions?

Accepted Answer

A) predicting or estimating amounts. 
B) the timing of cash flows 
C) the discount rate. 
D) all of the above. 
A) predicting or estimating amounts. 
B) the timing of cash flows 
C) the discount rate. 
D) all of the above.

Question 16

Which statement is true concerning environmental investments such as installing pollution control devices?

Accepted Answer

A) These investments may provide many social benefits,not leading to quantifiable cash flows for the company. 
B) These investments may provide cash flow benefits by eliminating fines,legal costs,and cleanups. 
C) These investments are never undertaken unless required by Federal regulations. 
D) Both "a" and "b". 
A) These investments may provide many social benefits,not leading to quantifiable cash flows for the company. 
B) These investments may provide cash flow benefits by eliminating fines,legal costs,and cleanups. 
C) These investments are never undertaken unless required by Federal regulations. 
D) Both "a" and "b".

Question 17

A firm will depreciate a computer costing $10,000 over five years using the straight-line methods for financial reporting.For tax purposes,the company will use an accelerated method as follows:
 
Assuming a tax rate of 40 percent,what is the relevant cash flow for present value analysis associated with the tax savings related to depreciation for Year 2?

Accepted Answer

A) $1,280. 
B) $1,667. 
C) $1,920. 
D) $3,200. 
A) $1,280. 
B) $1,667. 
C) $1,920. 
D) $3,200.

Question 18

What does the term capitalmean in the context of making capital expenditure decisions?

Accepted Answer

A) long-term assets. 
B) the funds with which a firm acquires assets. 
C) the source of funds typically reported as long-term liabilities and owners' equity. 
D) None of the above. 
A) long-term assets. 
B) the funds with which a firm acquires assets. 
C) the source of funds typically reported as long-term liabilities and owners' equity. 
D) None of the above.

Question 19

Johnson Enterprises has three possible projects.Each project requires the same initial investment of $1,000,000.The cash flows are as follows:
   
Ignoring taxes,compute the net present value of each project at a 15 percent cost of capital.Which project should be chosen? Be sure to show your supporting calculations.

Accepted Answer

Project X,net present value is $2,562,50

Question 20

For the internal rate of return to rank projects the same way as the net present value rule,which condition must exist?

Accepted Answer

A) The cutoff rate used for the internal rate equals the cost of capital. 
B) Projects are mutually exclusive. 
C) Projects have different lives. 
D) There must be more than one internal rate of return. 
A) The cutoff rate used for the internal rate equals the cost of capital. 
B) Projects are mutually exclusive. 
C) Projects have different lives. 
D) There must be more than one internal rate of return.

Which term describes the interest rate used in computing the present value of future cash flows?

The terminal cash flows associated with an investment project include which of the following?

At the end of a five-year life,a company will dispose of an asset and recognize a gain of $6,000.If the company's cost of capital is 15 percent and its tax rate is 30 percent,what is the present value of the future cash flow?

Which of the following are steps needed for using the net present value method for making long-term decisions using discounted cash flows?

When using the internal rate of return to evaluate investment alternatives,which rate would analysts specify?

The periodic cash flows associated with an investment project include which of the following?

Explain the application of the internal rate of return method of assessing investment alternatives.

Managers are often correct that the company would benefit from advanced manufacturing technology.However,the present value of future cash flows analysis usually results in a negative net present value for the investment because of the exclusion of benefits that are difficult to quantify such as

Which of the following is an assumption of capital budgeting?

What is the process by which a firm considering acquiring a new plant or new equipment must decide whether to make the investment,then decide how to raise the funds required for the investment?

Which statement is true concerning depreciation?

In which area will analysts likely err when making capital investment decisions?

Which statement is true concerning environmental investments such as installing pollution control devices?

What does the term capitalmean in the context of making capital expenditure decisions?

For the internal rate of return to rank projects the same way as the net present value rule,which condition must exist?

Fundamental Concepts

Measuring Product Costs

Activity-Based Management

Strategic Management of Costs,quality,and Time

Cost Drivers and Cost Behavior

Financial Modeling for Short-Term Decision Making

Differential Cost Analysis for Operating Decisions

Profit Planning and Budgeting

Profit and Cost Center Performance Evaluation

Investment Center Performance Evaluation

Incentive Issues

Allocating Costs to Responsibility Centers

Filters

Exam 8: Capital Expenditure Decisions

Which term describes the interest rate used in computing the present value of future cash flows?

The terminal cash flows associated with an investment project include which of the following?

At the end of a five-year life,a company will dispose of an asset and recognize a gain of $6,000.If the company's cost of capital is 15 percent and its tax rate is 30 percent,what is the present value of the future cash flow?

Which of the following are steps needed for using the net present value method for making long-term decisions using discounted cash flows?

When using the internal rate of return to evaluate investment alternatives,which rate would analysts specify?

The periodic cash flows associated with an investment project include which of the following?

Explain the application of the internal rate of return method of assessing investment alternatives.

Managers are often correct that the company would benefit from advanced manufacturing technology.However,the present value of future cash flows analysis usually results in a negative net present value for the investment because of the exclusion of benefits that are difficult to quantify such as

Which of the following is an assumption of capital budgeting?

What is the process by which a firm considering acquiring a new plant or new equipment must decide whether to make the investment,then decide how to raise the funds required for the investment?

Which statement is true concerning depreciation?

In which area will analysts likely err when making capital investment decisions?

Which statement is true concerning environmental investments such as installing pollution control devices?

What does the term capitalmean in the context of making capital expenditure decisions?

For the internal rate of return to rank projects the same way as the net present value rule,which condition must exist?

Fundamental Concepts

Measuring Product Costs

Activity-Based Management

Strategic Management of Costs,quality,and Time

Cost Drivers and Cost Behavior

Financial Modeling for Short-Term Decision Making

Differential Cost Analysis for Operating Decisions

Profit Planning and Budgeting

Profit and Cost Center Performance Evaluation

Investment Center Performance Evaluation

Incentive Issues

Allocating Costs to Responsibility Centers

Filters