22 Jul WHAT IS THE RELEVANT INITIAL CASH OUTFLOW FOR THE FOLLOWING PROJECT?
An Show more If an asset is sold for less than its purchase price but more than its depreciation book value: Answer A. the asset sale creates no taxable event B. there is a tax computed using the ordinary income rate C. there is a taxable event with a capital loss created D. there is a loss to report for tax purposes 0.66667 points Question 5 A problem associated with the payback method is: Answer A. it uses the time value of money concept B. it doesnt consider cash flows after the payback period C. it assumes that all cash flows are invested at the cost of capital D. it usually requires less time to compute than that required by the net present value method 0.66667 points Question 7 The project selection method most consistent with the goal of firm value maximization is: Answer A. IRR B. payback method C. both IRR and NPV D. NPV 0.66667 points Question 8 You have purchased a machine for $120000 and are depreciating it using a three-year MACRS schedule. You are in a 30% tax bracket and will be able to sell the machine for $50000 at the end of year four. Calculate your cash flow from the sale of this machine. Answer A. $35000 B. $30000 C. $12336 D. $28784 0.66667 points 0.66667 points Question 11 The relationship between NPV of a project and the required rate of return is: Answer A. random B. negative C. positive D. determined by the relationship of NPV to IRR 0.66667 points Question 12 The payback period is best defined as: Answer A. the time period required for total revenue received to equal the initial investment B. the time period required for the NPV to equal zero C. the time it takes to receive cash flows sufficient to cover your initial investment D. the time period required for the present value of all cash flows to equal the initial investment 0.66667 points Question 13 When the used asset is eventually sold for less than its depreciated book value: Answer A. then the difference is taxed as ordinary income B. there is a capital gain tax C. there are no tax effects D. The firms tax liability is reduced by the amount of the difference times the ordinary income tax rate 0.66667 points Question 14 Calculate the IRR for the following investment project: Initial investment is $75000; inflows are $20000 for the next five years; Range of IRR is between 9%-14%. (Round your answer to the nearest whole percentage) Answer A. 9% B. 10% C. 14% D. 12% 0.66667 points Question 15 If a new machine requires an increase in current assets from $50000 to $60000 and current liabilities from $30000 to $50000 the dollar change in net working capital is: Answer A. undefined B. zero C. negative D. positive 0.66667 points Question 16 In cases of conflict among mutually exclusive projects the one with highest: Answer A. cost of capital should be chosen B. with mutually exclusive projects NPV = IRR so the highest of either is appropriate C. NPV should be chosen D. IRR should be chosen 0.66667 points Question 17 What is the relevant initial cash outflow of the following project for capital budgeting analysis purposes? Equipment cost $100000 Installation 20000 Delivery 3000 Consultant fees for regulation impact study 15000 Change in operating expenses 5000/year Answer A. $123000 B. $120000 C. $138000 D. $128000 0.66667 points Question 18 An externality can best be described as: Answer A. something that should not be considered in the capital budgeting process. B. something that always represents a negative impact C. an impact positive or negative that a new project would have on existing projects D. an example of opportunity costs 0.66667 points Question 19 What is the relevant initial cash outflow for the following project? Equipment cost $50000 Installation $ 5000 Cash increase needed $ 2000 Inventory increase needed $ 3000 Accounts payable increase $ 2000 Answer A. $60000 B. $55000 C. $62000 D. $58000 0.66667 points Question 20 Independent projects: Answer A. can be mutually exclusive under certain conditions B. always have negative NPVs C. do not compete with each other D. do compete with each other 0.66667 points Question 21 Which of the following situations would not be considered as an incremental cash flow for a proposed new machine? Answer A. externalities created by the project B. tax changes C. changes in overhead D. prepaid rent expense 0.66667 points Question 22 In capital budgeting financing costs associated with incremental cash flows: Answer A. are not included in the cash flow figures because they are not relevant cash flows B. need to be included in the cash flows that are discounted because they will not occur if the project is rejected. C. lead to distortions in the capital budgeting decision D. are factored into the discount rate 0.66667 points Question 23 Depreciation associated with a project will: Answer A. cause incremental cash flows to increase B. only affect the fixed asset account as depreciation is a sunk cost C. have no effect on incremental cash flows D. cause incremental operating cash flows to decrease 0.66667 points Question 24 Given the following information calculate the net present value: Initial outlay is $50000; required rate of return is 10%; current prime rate is 12%; and cash inflows at the end of the next 4 years are $60000 $30000 $40000 and $50000. Answer A. less than 0 B. equal to 0 C. $87734 D. $93542 0.66667 points Question 25 For a higher than average risk project the analyst: Answer A. adjusts the discount rate upward in the IRR calculation B. uses a risk-free rate of interest as the required rate of return C. always rejects the project D. adjusts the discount rate upward in the NPV calculation 0.66667 points Question 26 The relevant cash flows in capital budgeting can best be described as: Answer A. externality cash flows B. incremental cash flows C. incremental after-tax net income D. changes in fixed asset cash flows 0.66667 points Question 27 Given the following information calculate NPV: Initial investment is $50000; inflows at the end of the next four years are $12000 $4000 $12000 $13000; required rate of return is 8%. Answer A. $83622 B. -$12442 C. -$16378 D. -$10427 0.66667 points Question 28 NPV represents: Answer A. the percentage change represented by the project B. the dollar change in firm value resulting from undertaking a project C. the dollar profits added to the firm discounting at the cost of capital D. the percentage return of the project 0.66667 points Question 29 You have purchased equipment costing $100000 and will depreciate it according to the schedule for a MACRS five-year asset. You have a 40% tax rate and sell the equipment for $25000 at the end of six years. Calculate your taxes. Answer A. $15000 B. $ 6920 C. $ 3080 D. $10000 0.66667 points Question 30 Calculate the payback period for the following investment: A machine costs $100000 with installation costs of $15000. Cash inflows are expected to be 26000 per year for the next seven years. Answer A. 5 years B. 3.85 years C. greater than 6 years D. 4.42 years Show less
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