Module 5 Quiz
The capital budgeting process is very important to the firm because it:
Highlights the impacts of a project on net income
Indicates the net cash flows available for employee education
Essentially plots the company’s future direction
Is used in working capital an...
Module 5 Quiz
The capital budgeting process is very important to the firm because it:
Highlights the impacts of a project on net income
Indicates the net cash flows available for employee education
Essentially plots the company’s future direction
Is used in working capital analysis
Which of the following are (is) generally considered problems associated with cash
flow estimation?
Uncertainty about the future cash flow and the introduction of bias into the
estimation of cash flows
Uncertainty about the future cash flows
Uncertainty about the magnitude of fixed cost financing charges
The introduction of bias into the estimation of cash flows
Capital foods has purchased an oven 5 years ago for $450,000. The oven is being
depreciated over it's estimated 10-ywae life using the straight line method to
salvage value if $5000. Capital is planning to replace the oven with a more
automated one that will cost $150,000 installed. If the old oven can be sold for
$30,000. Why is the tax liability? Assume a marginal tax rate of 40 percent.
$127,000
$25,000
$2,000
$900
A drill press costs $30,000 and is expected to have a 10 year life. The drill press will
be depreciated on a straight-line basis over 10 years to a zero estimated salvage
value. This machine is expected to reduce the firm’s cash operation costs by $4,500
per year. If the firm is in the 40 percent marginal tax bracket, determine the annual
net cash flows generated by the drill press.
$5,700
$4,500
$3,900
$900
When calculating the net cash flow in a project’s expected final year,
Recovery of any working capital invested is disregarded
The remaining principal on any borrowed funs is considered
The sales proceeds from any land associated with the project is disregarded
The after-tax salvage value of any project equipment is considered
The relationship between NPV and IRR is such that:
Both approaches always provide the same ranking of alternative investment
projects
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, None of the above
The IRR of a project is equal to the firm’s cost of capital if the NPV of a project
is $0
If the NPV of a project is negative, the IRR must be greater than the cost of
capital
In Step Video is considering expanding its video rental library to 8,000 tapes. The
purchase price of the additional videos will be $8,000 and the shopping cost is
another $4,000. To house the tapes, the owner will have to spend another $10,000
for display shelves, increase net working capital to by $5,000 and interest expenses
will add another $8000 to operating cost. What is the net investment in In Step for
this project?
$84,000
$107,000
$95,000
$99,000
Which of the following is a basic principle when estimating a project’s cash flow?
Cash flows should be measured on a pretax basis
Cash flows should ignore depreciation because it’s a non-cash charge
Only direct effects of a project should be included in cash flow calculations
Cash flows should be measured on an incremental basis
Ten years ago J-Bar Company purchased a lathe for $250,000. It was being
depreciated on a straight-line basis to an estimated $25,000 salvage value over a
15 year period. The firm is considering selling the old lathe and purchasing a new
one. The new lathe would cost $500,000. The firms’ marginal tax rate is 40 percent.
Determine the net investment required to purchase the new lathe, if the old lathe is
sold for $100,000.
$418,000
$397,500
$380,000
$400,000
Sale of an asset for less than book value creats an operating loss which effectively
reduces the company's taxes by an amount equal to ___ times ___
One-half the loss, the company's marginal tax rate
One-half the loss, one minus the company's marginal tax rate
The loss, one minus the company's marginal tax rate
The loss, the company's marginal tax rate
The determination of net cash flows (ncf) should never include
Changes in operating costs
Interest charges
Indirect effects
Changes in depreciation
This study source was downloaded by 100000890485048 from CourseHero.com on 09-17-2024 17:34:32 GMT -05:00
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