1|Page: 2024/2025 Grade A+
Corporate Finance Questions and Correct
Answers & Latest Updated
A cost that should be ignored when evaluating a project because that cost has already been
incurred and cannot be recouped is referred to as a(n)
o :## sunk cost.
A cost-cutting project will decrease costs by $37,400 a year. The annual depreciation on the
project's fixed assets will be $4,700 and the tax rate is 34 percent. What is the amount of
the change in the firm's operating cash flow resulting from this project?
o :## $26,282
A debt-free firm has net income of $107,400, taxes of $38,700, and depreciation of $19,300.
What is the operating cash flow?
o :## $126,700
A new project is expected to generate an operating cash flow of $38,728 and will initially
free up $11,610 in net working capital. Purchases of fixed assets costing $52,800 will be
required to start up the project. What is the total cash flow for this project at Time zero?
o :## -$41,190
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,2|Page: 2024/2025 Grade A+
A nine-year project is expected to generate annual revenues of $137,800, variable costs of
$82,600, and fixed costs of $11,000. The annual depreciation is $23,500 and the tax rate is
34 percent. What is the annual operating cash flow?
o :## $37,162
A pro forma financial statement is a financial statement that:
o :## projects future years' operating results.
A project has annual depreciation of $15,028, costs of $82,592, and sales of $138,765. The
applicable tax rate is 34 percent. What is the operating cash flow according to the tax shield
approach?
o :## $42,183.70
A project has sales of $511,800, costs of $322,400, depreciation of $22,620, interest
expense of $3,062, and a tax rate of 34 percent. What is the value of the depreciation tax
shield?
o :## $7,690.80
A project requires $428,000 of equipment that is classified as seven-year property. What is
the depreciation expense in Year 3 given the following MACRS depreciation allowances,
starting with Year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?
o :## $74,857.20
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, 3|Page: 2024/2025 Grade A+
Any changes to a firm's projected future cash flows that are caused by adding a new project
are referred to as
o :## incremental cash flows.
Contingency planning focuses on the:
o :## managerial options implicit in a project.
Dismal Outlook is unable to obtain financing for any new projects under any circumstances.
This company is faced with:
o :## hard rationing.
Custom Tailored Shirts is a specialty retailer offering T-shirts, sweatshirts, and caps. Its most
recent annual sales consisted of $21,000 of T-shirts, $18,000 of sweatshirts, and $2,900 of
caps. The company is adding polo shirts to the lineup and projects that this addition will
result in sales next year of $18,000 of T-shirts, $16,000 of sweatshirts, $11,500 of Polo
shirts, and $2,100 of caps. What sales amount should be used when evaluating the Polo
shirt project?
o :## $5,700
Forecasting risk is best defined as:
o :## estimation risk.
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