26 May Question In essence, capital budgeting is the process of:
Question
A. Deciding what to do with the firm’s money
B. Deciding how much capital the firm needs
C. Deciding where to get the money for capital investment projects
D. Deciding when to invest in a new project
Question 2
Which of the following cash flows is an “incremental cash flow” for the purposes of capital budgeting?
A. Expenditures on plant and equipment for a new project
B. R& D expenditures for a new project during the last three years
C. Dividend payments
D. Reduction of a competitor’s sales as a result of the your company’s introduction of a new product
Question 3
In capital budgeting, the payback period is the:
A. Amount of time it takes to receive all the future cash flows from a project
B. Amount of time it takes to pay back any money borrowed to finance the project
C. Amount of time it take for the project to be completed
D. Amount if time it takes to recoup the initial investment for the project
Question 4
The Seattle Corporation has been presented with an investment opportunity which will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm’s cost of capital is 10 percent. At what point will the initial investment be paid back?
A. at the end of the 4th year
B. at the end of the 5th year
C. at the end of the 6th year
D. at the end of the 7th year
Question 5
Consider the following income statement and answer the question that follows: Sales (100 units)…………..$200 Variable costs ($.20 ea)……20 Fixed Costs…………………..80 EBIT…………………………..100 Interest Expense…………….30 EBT……………………………70 Income tax…………………..24 Net Income…………………..46 What is the firm’s Breakeven Point in units?
A. 1
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