Question 1

The machine's NPV is:

Accepted Answer

A) $1,556.56. 
B) $2,556.56. 
C) $1,123.99. 
D) $2,123.99. 
A) $1,556.56. 
B) $2,556.56. 
C) $1,123.99. 
D) $2,123.99.

Question 2

Bull Gator Industries is considering a new assembly line costing $6,000,000.The assembly line will be fully depreciated by the simplified straight line method over its 5 year depreciable life.Operating costs of the new machine are expected to be $1,100,000 per year.The existing assembly line has 5 years remaining before it will be fully depreciated and has a book value of $3,000,000.If sold today the company would receive $2,400,000 for the existing machine.Annual operating costs on the existing machine are $2,100,000 per year.Bull Gator is in the 46 percent marginal tax bracket and has a required rate of return of 12 percent.
a.Calculate the net present value of replacing the existing machine.
b.Explain the impact on NPV of the following:

Accepted Answer

@#IMG-DLM& 
Depreciation on old machine
$3,000,000

Question 3

Kahnemann Kookies is evaluating the replacement of an old oven with a new,more energy efficient model.The old oven cost $50,000,is 5 years old and is being depreciated over a life of 10 years to a value of $0.00.The new oven costs $60,000 and will be depreciated over 5 years with no salvage value.Kahnemann uses straight line depreciation,its tax rate is 40%.If the old oven is sold for $10,000,compute the net cost of the new oven.

Accepted Answer

Annual depreciation on the old oven was

Question 4

The machine's after-tax incremental cash flow in year five is:

Accepted Answer

A) $6,980. 
B) $5,980. 
C) $7,120. 
D) $8,620. 
A) $6,980. 
B) $5,980. 
C) $7,120. 
D) $8,620.

Question 5

ABC will purchase a machine that will cost $2,575,000.Required modifications will cost $375,000.ABC will need to invest $75,000 for additional inventory.The machine has an IRS approved useful life of 7 years;it is presumed to have no salvage value.ABC plans to depreciate the machine by using the straight-line method.The machine is expected to increase ABC's sales revenues by $1,890,000 per year;operating costs excluding depreciation are estimated at $454,600 per year.Assume that the firm's tax rate is 40%.What is the annual operating cash flow?

Accepted Answer

A) $922,464 
B) $1,126,287 
C) $813,563 
D) $1,029,811 
A) $922,464 
B) $1,126,287 
C) $813,563 
D) $1,029,811

Question 6

The machine's initial cash outflow is:

Accepted Answer

A) $20,000. 
B) $21,000. 
C) $27,000. 
D) $23,000. 
A) $20,000. 
B) $21,000. 
C) $27,000. 
D) $23,000.

Question 7

In making a capital budgeting decision we only include the incremental cash flows resulting from the investment decision.

Accepted Answer

A) True 
 B)False

Question 8

The opportunity cost of using a resource in some way is the amount the resource could earn if used in an alternative way.

Accepted Answer

A) True 
 B)False

Question 9

The initial outlay involves the immediate cash outflow necessary to purchase the asset and put it in operating order.

Accepted Answer

A) True 
 B)False

Question 10

Holding all other variables constant,which of the following would INCREASE net working capital for given year on a project?

Accepted Answer

A) Allowing customers less time to pay for purchases 
B) Taking longer to pay suppliers 
C) Increasing inventory levels 
D) Both A and C 
A) Allowing customers less time to pay for purchases 
B) Taking longer to pay suppliers 
C) Increasing inventory levels 
D) Both A and C

Question 11

The capital budgeting decision-making process involves measuring the expected incremental cash flows of an investment proposal and evaluating the value of these cash flows relative to the project's cost.

Accepted Answer

A) True 
 B)False

Question 12

Expenses incurred to install an asset are part of the asset's initial cash outflow.

Accepted Answer

A) True 
 B)False

Question 13

National Geographic is replacing an old printing press with a new one.The old press is being sold for $350,000 and it has a net book value of $75,000.Assume that National Geographic is in the 40% income tax bracket.How much will National Geographic pay in income taxes from the sale?

Accepted Answer

A) $140,000 
B) $45,000 
C) $110,000 
D) $87,010 
A) $140,000 
B) $45,000 
C) $110,000 
D) $87,010

Question 14

When replacing an existing asset,the cash inflow associated with the sale of the old asset and any related tax effects must be considered and accounted for in the analysis.

Accepted Answer

A) True 
 B)False

Question 15

Mr.Smith included the cost of test marketing before production in the calculation of the initial outlay.Apparently,Mr.Smith does not understand the concept of:

Accepted Answer

A) side-effect costs. 
B) opportunity costs. 
C) sunk costs. 
D) variable costs. 
A) side-effect costs. 
B) opportunity costs. 
C) sunk costs. 
D) variable costs.

Question 16

Cape Cod Cranberries is evaluating the introduction of a new line of organic cranberry products.Market research suggests that approximates 1/3 of sales of the new products will come at the expense of existing product lines.How should this "cannibalization effect" be incorporated into the analysis.

Accepted Answer

Incremental cash flows are determined by

Question 17

Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal?

Accepted Answer

A) Increase in accounts receivable 
B) The cost of shipping new equipment 
C) The cost of issuing new bonds if the project is financed by a new bond issue 
D) The cost of installing new equipment 
E) All of the above should be considered. 
A) Increase in accounts receivable 
B) The cost of shipping new equipment 
C) The cost of issuing new bonds if the project is financed by a new bond issue 
D) The cost of installing new equipment 
E) All of the above should be considered.

Question 18

Tversky and Co.have devised a new psychological test for investors' risk tolerance.They expect to sell 10,000 tests in the first year at $150 each.Cash costs associated with producing,administering and scoring the test are $50 per unit.In the second year,volume is expected to be the same,but both the price and the costs will increase 2.5%.Forecast gross profit in the second year.

Accepted Answer

The answer of Tversky and Co.have devised a new psychological...

Question 19

Marguerite's Florist is considering the purchase of a new delivery van.It will cost $25,000 plus another $3,000 to have it painted in the company's characteristic floral motif.The van will be depreciated over 5 years using MACRS percentages and a half year convention.Compute depreciation for the second year in the life of the van.

Accepted Answer

For depreciation purposes,the

Question 20

Which of the following should be considered in the estimation of free cash flows?

Accepted Answer

A) Cash generated from the sale of a project 
B) Recovery of net working capital 
C) Operating cash flow 
D) All of the above 
A) Cash generated from the sale of a project 
B) Recovery of net working capital 
C) Operating cash flow 
D) All of the above

The machine's NPV is:

The machine's after-tax incremental cash flow in year five is:

The machine's initial cash outflow is:

In making a capital budgeting decision we only include the incremental cash flows resulting from the investment decision.

The opportunity cost of using a resource in some way is the amount the resource could earn if used in an alternative way.

The initial outlay involves the immediate cash outflow necessary to purchase the asset and put it in operating order.

Holding all other variables constant,which of the following would INCREASE net working capital for given year on a project?

The capital budgeting decision-making process involves measuring the expected incremental cash flows of an investment proposal and evaluating the value of these cash flows relative to the project's cost.

Expenses incurred to install an asset are part of the asset's initial cash outflow.

National Geographic is replacing an old printing press with a new one.The old press is being sold for $350,000 and it has a net book value of $75,000.Assume that National Geographic is in the 40% income tax bracket.How much will National Geographic pay in income taxes from the sale?

When replacing an existing asset,the cash inflow associated with the sale of the old asset and any related tax effects must be considered and accounted for in the analysis.

Mr.Smith included the cost of test marketing before production in the calculation of the initial outlay.Apparently,Mr.Smith does not understand the concept of:

Cape Cod Cranberries is evaluating the introduction of a new line of organic cranberry products.Market research suggests that approximates 1/3 of sales of the new products will come at the expense of existing product lines.How should this "cannibalization effect" be incorporated into the analysis.

Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal?

Which of the following should be considered in the estimation of free cash flows?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 12: Analyzing Project Cash Flows

The machine's NPV is:

The machine's after-tax incremental cash flow in year five is:

The machine's initial cash outflow is:

In making a capital budgeting decision we only include the incremental cash flows resulting from the investment decision.

The opportunity cost of using a resource in some way is the amount the resource could earn if used in an alternative way.

The initial outlay involves the immediate cash outflow necessary to purchase the asset and put it in operating order.

Holding all other variables constant,which of the following would INCREASE net working capital for given year on a project?

The capital budgeting decision-making process involves measuring the expected incremental cash flows of an investment proposal and evaluating the value of these cash flows relative to the project's cost.

Expenses incurred to install an asset are part of the asset's initial cash outflow.

National Geographic is replacing an old printing press with a new one.The old press is being sold for $350,000 and it has a net book value of $75,000.Assume that National Geographic is in the 40% income tax bracket.How much will National Geographic pay in income taxes from the sale?

When replacing an existing asset,the cash inflow associated with the sale of the old asset and any related tax effects must be considered and accounted for in the analysis.

Mr.Smith included the cost of test marketing before production in the calculation of the initial outlay.Apparently,Mr.Smith does not understand the concept of:

Cape Cod Cranberries is evaluating the introduction of a new line of organic cranberry products.Market research suggests that approximates 1/3 of sales of the new products will come at the expense of existing product lines.How should this "cannibalization effect" be incorporated into the analysis.

Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal?

Which of the following should be considered in the estimation of free cash flows?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters