CH. 11 FINANCE

Initial cash outflows and subsequent operating cash inflows for a project are referred to as ________.A) necessary cash flowsB) relevant cash flowsC) perpetual cash flowsD) ordinary cash flows B) relevant cash flows
Relevant cash flows for a project are best described as ________.A) incidental cash flowsB) incremental cash flowsC) sunk cash flowsD) contingent cash flows B) incremental cash flows
When making replacement decisions, the development of relevant cash flows is complicated when compared to expansion decisions, due to the need to calculate ________ cash inflows.A) conventionalB) opportunityC) incrementalD) sunk C) incremental
In developing the cash flows for an expansion project, the analysis is the same as the analysis for replacement projects where ________.A) all cash flows from the old assets are equalB) prior cash flows are irrelevantC) all cash flows from the old asset are zeroD) cash inflows equal cash outflows C) all cash flows from the old asset are zero
Cash outlays that had been previously made and have no effect on the cash flows relevant to a current decision are called ________.A) incremental historical costsB) incremental past expensesC) opportunity costs foregoneD) sunk costs D) sunk costs
Cash flows that could be realized from the best alternative use of an owned asset are called ________.A) incremental costsB) lost resale opportunitiesC) opportunity costsD) sunk costs C) opportunity costs
Which of the following would be used in the computation of an initial investment?A) the annual after-tax inflow expected from the investmentB) the initial purchase price of the investmentC) the historic cost of the existing investmentD) the profits from the new investment B) the initial purchase price of the investment
Which of the following basic variables must be considered in determining the initial investment associated with a capital expenditure?A) incremental annual savings produced by the new assetB) cash flows generated by the new investmentC) proceeds from the sale of an existing assetD) profits on the sale of an existing asset C) proceeds from the sale of an existing asset
An important cash inflow in the analysis of initial cash flows for a replacement project is ________.A) taxesB) the cost of the new assetC) installation costD) the sale value of the old asset D) the sale value of the old asset
When evaluating a capital budgeting project, installation costs of a new machine must be considered as part of ________.A) the operating cash inflowsB) the initial investmentC) the incremental operating cash inflowsD) the operating cash outflows B) the initial investment
The change in net working capital when evaluating a capital budgeting decision is ________.A) the change in fixed liabilities minus the change in fixed assetsB) the increase in current assetsC) the increase in current liabilitiesD) the change in current assets minus the change in current liabilities D) the change in current assets minus the change in current liabilities
In evaluating the initial investment for a capital budgeting project, ________.A) an increase in net working capital is considered a cash inflowB) a decrease in net working capital is considered a cash outflowC) an increase in net working capital is considered a cash outflowD) net working capital does not have to be considered C) an increase in net working capital is considered a cash outflow
A corporation is considering expanding operations to meet growing demand. With the capital expansion, the current accounts are expected to change. Management expects cash to increase by $20,000, accounts receivable by $40,000, and inventories by $60,000. At the same time accounts payable will increase by $50,000, accruals by $10,000, and long-term debt by $100,000. The change in net working capital is ________.A) an increase of $120,000B) a decrease of $60,000C) a decrease of $120,000D) an increase of $60,000 D) an increase of $60,000
A corporation is considering expanding operations to meet growing demand. With the capital expansion the current accounts are expected to change. Management expects cash to increase by $10,000, accounts receivable by $20,000, and inventories by $30,000. At the same time accounts payable will increase by $40,000, accruals by $30,000, and long-term debt by $80,000. The change in net working capital is ________.A) an increase of $10,000B) a decrease of $10,000C) a decrease of $90,000D) an increase of $80,000 B) a decrease of $10,000
If accounts receivable increase by $1,000,000, inventory decreases by $500,000, and accounts payable increaecrease by $500,000B) increase by $1,500,000C) increase by $2,000,000D) experience no change D) experience no change
The book value of an asset is equal to the ________.A) fair market value minus the accounting valueB) original purchase price plus annual depreciation expenseC) original purchase price minus accumulated depreciationD) depreciated value plus recaptured depreciation C) original purchase price minus accumulated depreciation
The tax treatment regarding the sale of existing assets that are sold for more than the original purchase price results in ________.A) an ordinary tax benefitB) no tax benefit or liabilityC) a recaptured depreciation taxed as ordinary incomeD) a capital gain tax liability D) a capital gain tax liability
The tax treatment regarding the sale of existing assets that are sold for more than the book value but less than the original purchase price results in a(n) ________.A) ordinary tax benefitB) capital gain tax liabilityC) recaptured depreciation taxed as ordinary incomeD) capital gain tax liability and recaptured depreciation taxed as ordinary income C) recaptured depreciation taxed as ordinary income
The tax treatment regarding the sale of existing assets that are sold for their book value results in ________.A) an ordinary tax benefitB) no tax benefit or liabilityC) recaptured depreciation taxed as ordinary incomeD) a capital gain tax liability and recaptured depreciation taxed as ordinary income B) no tax benefit or liability
The portion of an asset’s sale price that is above its book value and below its initial purchase price is called ________.A) a capital gainB) recaptured depreciationC) a capital lossD) book value B) recaptured depreciation
The portion of an asset’s sale price that is below its book value and below its initial purchase price is called ________.A) a capital gainB) recaptured depreciationC) a capital lossD) book value C) a capital loss
The tax treatment regarding the sale of existing assets that are sold for less than the book value results in ________.A) an ordinary tax benefitB) a capital loss tax benefitC) recaptured depreciation taxed as ordinary incomeD) a capital gain tax liability and recaptured depreciation taxed as ordinary income B) a capital loss tax benefit
A corporation is selling an existing asset for $21,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period, and has been depreciated for four full years. If the assumed tax rate is 40 percent on ordinary income and capital gains, the tax effect of this transaction is ________.A) $0 tax liabilityB) $7,560 tax liabilityC) $4,400 tax liabilityD) $7,720 tax liability D) $7,720 tax liability
A corporation is selling an existing asset for $1,700. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period, and has been depreciated for four full years. If the assumed tax rate is 40 percent on ordinary income and capital gains, the tax effect of this transaction is ________A) $0 tax liabilityB) $840 tax liabilityC) $3,160 tax liabilityD) $3,160 tax benefit A) $0 tax liability
A corporation is selling an existing asset for $1,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period, and has been depreciated for four full years. If the assumed tax rate is 40 percent on ordinary income and capital gains, the tax effect of this transaction is ________.A) $0 tax liabilityB) $1,100 tax liabilityC) $3,600 tax liabilityD) $280 tax benefit D) $280 tax benefit
A firm is selling an existing asset for $5,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period and has been depreciated for four full years. If the assumed tax rate is 40 percent on ordinary income and capital gains, the tax effect of this transaction is ________.A) $0 tax liabilityB) $1,320 tax liabilityC) $1,160 tax liabilityD) $2,000 tax benefit B) $1,320 tax liability
A loss on the sale of an asset that is depreciable and used in business is ________; a loss on the sale of a non-depreciable asset is ________.A) deductible from capital gains income; deductible from ordinary incomeB) deductible from ordinary income; deductible only against capital gainsC) a credit against the tax liability; not deductibleD) not deductible; deductible only against capital gains B) deductible from ordinary income; deductible only against capital gains
A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $25,000. The new asset will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is ________.A) $42,000B) $52,440C) $54,240D) $50,000 C) $54,240
A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $70,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $30,000. The new asset will cost $80,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is ________.A) $48,560B) $44,360C) $49,240D) $27,600 A) $48,560
Benefits expected from proposed capital expenditures ________.A) must be on a pre-tax basis because it provides the true position of profits by the firmB) must be on an after-tax basis because no benefits may be used until tax claims are satisfiedC) may be valued either on pre-tax or after-tax basis based on the size of the firmD) are independent of interest and taxes B) must be on an after-tax basis because no benefits may be used until tax claims are satisfied
One basic technique used to evaluate after-tax operating cash flows is to ________.A) add noncash charges to net incomeB) subtract depreciation from operating revenuesC) add cash expenses to net incomeD) subtract cash expenses from noncash charges A) add noncash charges to net income
Table 11.3Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.24) The cash flow pattern for the capital investment proposal is ________. (See Table 11.3)A) a mixed stream and conventionalB) a mixed stream and nonconventionalC) a perpetuity and conventionalD) an annuity and nonconventional A) a mixed stream and conventional
The book value of the existing asset is ________. (See Table 11.3)A) $7,250B) $15,000C) $21,250D) $25,000 A) $7,250
The tax effect on the sale of the existing asset results in ________. (See Table 11.3)A) $800 tax benefitB) $1,000 tax liabilityC) $1,100 tax liabilityD) $6,000 tax liability C) $1,100 tax liability
The initial outlay equals ________. (See Table 11.3)A) $41,100B) $44,100C) $38,800D) $38,960 B) $44,100
The incremental depreciation expense for year 1 is ________. (See Table 11.3)A) $2,250B) $7,600C) $7,000D) $7,950 B) $7,600
The incremental depreciation expense for year 5 is ________. (See Table 11.3)A) $2,250B) $5,110C) $7,950D) $6,360 D) $6,360
The annual incremental after-tax cash flow from operations for year 1 is ________. (See Table 11.3)A) $13,950B) $16,600C) $25,600D) $30,000 B) $16,600
Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine’s market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a one-time cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five-year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains.37) The payback period for the project is ________. (See Table 11.5)A) 2 yearsB) 3 yearsC) between 3 and 4 yearsD) between 4 and 5 years C) between 3 and 4 years
The tax effect of the sale of the existing asset is ________. (See Table 11.5)A) a tax liability of $2,340B) a tax benefit of $1,500C) a tax liability of $3,320D) a tax liability of $5,320 D) a tax liability of $5,32
The initial outlay for this project is ________. (See Table 11.5)A) $42,820B) $40,320C) $47,820D) $35,140 C) $47,820
The present value of the project’s annual cash flows is ________. (See Table 11.5)A) $ 47,820B) $ 42,820C) $ 51,635D) $100,563 C) $ 51,635
The net present value of the project is ________. (See Table 11.5)A) $3,815B) $2,445C) $5,614D) $7,500 A) $3,815
The internal rate of return for the project is ________. (See Table 11.5)A) between 7 and 8 percentB) between 9 and 10 percentC) greater than 12 percentD) between 10 and 11 percent C) greater than 12 percent
Which of the following must be considered in computing the terminal value of a replacement project?A) operating cash flow for the final yearB) after-tax proceeds from the sale of a new assetC) before-tax proceeds from the sale of an old assetD) before-tax proceeds from the sale of a new asset B) after-tax proceeds from the sale of a new asset
A corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate the terminal cash flow. The proposed machine will be disposed of at the end of its usable life of five years at an estimated sale price of $15,000. The machine has an original purchase price of $80,000, installation cost of $20,000, and will be depreciated under the five-year MACRS. Net working capital is expected to decline by $5,000. The firm has a 40 percent tax rate on ordinary income and long-term capital gain. The terminal cash flow is ________.A) $24,000B) $16,000C) $14,000D) $26,000 B) $16,000
A corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate the terminal cash flow. The proposed machine will be disposed of at the end of its usable life of five years at an estimated sale price of $2,000. The machine has an original purchase price of $80,000, installation cost of $20,000, and will be depreciated under the five-year MACRS. Net working capital is expected to decline by $5,000. The firm has a 40 percent tax rate on ordinary income and long-term capital gain. The terminal cash flow is ________.A) $5,800B) $7,800C) $8,200D) $6,200 C) $8,200

Leave a Reply

Your email address will not be published. Required fields are marked *