Question 1

Which one of the following would not typically be considered a capital budgeting project for a restaurant?

Accepted Answer

A) renovating the ladies' restroom 
B) installing a new fire suppression and alarm system 
C) buying a new dishwashing system 
D) buying toilet paper for both the ladies' and men's restrooms 
A) renovating the ladies' restroom 
B) installing a new fire suppression and alarm system 
C) buying a new dishwashing system 
D) buying toilet paper for both the ladies' and men's restrooms D

Question 2

Poon's Noodle House is considering replacing their noodle-processing machine. The current machine was purchased 4 years ago at a total cost of $20,000. It is being depreciated straight-line to a zero value over 8 years. If Poon sells the noodle-processing machine for $6,000, what is the after-tax cash flow to Poon's Noodle House? Use 40% for the effective tax rate.

Accepted Answer

A) $8,400 
B) $3,600 
C) $2,400 
D) $7,600 
A) $8,400 
B) $3,600 
C) $2,400 
D) $7,600 D

Question 3

Capital budgeting decisions are based upon cost-benefit analysis. A project's net investment is compared to the project's net cash flows in order to make a decision.

Accepted Answer

A) True 
 B)False  True

Question 4

Higher depreciation results in lower profit and higher net cash flow.

Accepted Answer

A) True 
 B)False

Question 5

When making a capital budgeting decision, cash flows should be estimated on an incremental basis, not a total basis.

Accepted Answer

A) True 
 B)False

Question 6

Poon's Noodle House is considering replacing their noodle-processing machine. The current machine was purchased 4 years ago at a total cost of $20,000. It is being depreciated straight-line to a zero value over 8 years. If Poon sells the noodle-processing machine for $10,000, what is the after-tax cash flow to Poon's Noodle House? Use 40% for the effective tax rate.

Accepted Answer

A) $6,000 
B) $4,000 
C) $10,000 
D) $14,000 
A) $6,000 
B) $4,000 
C) $10,000 
D) $14,000

Question 7

Which one of the following is not part of a project's estimated net cash flows?

Accepted Answer

A) the expected loss in your firm's other businesses due to a new project 
B) the cost of a customer survey performed one year before the project decision is made 
C) the change in depreciation 
D) the change in cash operating costs 
A) the expected loss in your firm's other businesses due to a new project 
B) the cost of a customer survey performed one year before the project decision is made 
C) the change in depreciation 
D) the change in cash operating costs

Question 8

A project is expected to increase a firm's sales revenue by $12,000 annually, decrease it cash expenses by $18,000 annually, and increase its depreciation by $10,000 annually. Given this information, what is the project's expected annual net cash flow? Use a 40% effective tax rate.

Accepted Answer

A) $400 
B) $12,000 
C) $22,000 
D) $18,000 
A) $400 
B) $12,000 
C) $22,000 
D) $18,000

Question 9

Growth oriented capital budgeting projects typically do not require an increase in net working capital.

Accepted Answer

A) True 
 B)False

Question 10

In capital budgeting, the cost of starting a project is called the annual net cash flow.

Accepted Answer

A) True 
 B)False

Question 11

A project's net cash flows are typically cash inflows whereas a project's net investment is typically a cash outflow.

Accepted Answer

A) True 
 B)False

Question 12

What is net working capital?

Accepted Answer

A) current liabilities minus current assets 
B) current assets minus net fixed assets 
C) current assets minus current liabilities 
D) net fixed assets minus long-term liabilities 
A) current liabilities minus current assets 
B) current assets minus net fixed assets 
C) current assets minus current liabilities 
D) net fixed assets minus long-term liabilities

Question 13

The estimation of a project's net cash flows NCF)should not include changes in

Accepted Answer

A) depreciation. 
B) cash operating costs. 
C) interest expense. 
D) sales revenue. 
A) depreciation. 
B) cash operating costs. 
C) interest expense. 
D) sales revenue.

Question 14

The after-tax salvage value from replaced assets will decrease the net investment.

Accepted Answer

A) True 
 B)False

Question 15

A capital budgeting project's sunk costs and opportunity costs are both relevant to the project investment decision.

Accepted Answer

A) True 
 B)False

Question 16

A project is expected to decrease a firm's cash expenses by $40,000 annually, and increase its depreciation by $25,000 annually. Given this information, what is the project's expected annual net cash flow? Use a 40% effective tax rate.

Accepted Answer

A) $31,000 
B) $9,000 
C) $16,000 
D) $34,000 
A) $31,000 
B) $9,000 
C) $16,000 
D) $34,000

Question 17

Poon's Noodle House is considering replacing their noodle-processing machine. The current machine was purchased 4 years ago at a total cost of $20,000. It is being depreciated straight-line to a zero value over 8 years. If Poon sells the noodle-processing machine for $13,000, what is the after-tax cash flow to Poon's Noodle House? Use 40% for the effective tax rate.

Accepted Answer

A) $11,800 
B) $7,800 
C) $11,200 
D) $5,200 
A) $11,800 
B) $7,800 
C) $11,200 
D) $5,200

Question 18

Which of the following is a basic principle when estimating a project's cash flows?

Accepted Answer

A) Cash flows should be measured on a pretax basis. 
B) Cash flows should ignore depreciation because it is a non-cash charge. 
C) Only direct effects of a project should be included in cash flow calculations. 
D) Cash flows should be measured on an incremental basis. 
A) Cash flows should be measured on a pretax basis. 
B) Cash flows should ignore depreciation because it is a non-cash charge. 
C) Only direct effects of a project should be included in cash flow calculations. 
D) Cash flows should be measured on an incremental basis.

Question 19

If a depreciable asset is sold for less than its book value, then taxes must be paid on the difference.

Accepted Answer

A) True 
 B)False

Question 20

Your university is considering what to do with the current football stadium. They plan to invest to upgrade the current football stadium or invest to build a new one closer to campus. What kind of projects are these?

Accepted Answer

A) contingent projects 
B) mutually exclusive projects 
C) independent projects 
D) none of the above 
A) contingent projects 
B) mutually exclusive projects 
C) independent projects 
D) none of the above

Which one of the following would not typically be considered a capital budgeting project for a restaurant?

Capital budgeting decisions are based upon cost-benefit analysis. A project's net investment is compared to the project's net cash flows in order to make a decision.

Higher depreciation results in lower profit and higher net cash flow.

When making a capital budgeting decision, cash flows should be estimated on an incremental basis, not a total basis.

Which one of the following is not part of a project's estimated net cash flows?

A project is expected to increase a firm's sales revenue by $12,000 annually, decrease it cash expenses by $18,000 annually, and increase its depreciation by $10,000 annually. Given this information, what is the project's expected annual net cash flow? Use a 40% effective tax rate.

Growth oriented capital budgeting projects typically do not require an increase in net working capital.

In capital budgeting, the cost of starting a project is called the annual net cash flow.

A project's net cash flows are typically cash inflows whereas a project's net investment is typically a cash outflow.

What is net working capital?

The estimation of a project's net cash flows NCF)should not include changes in

The after-tax salvage value from replaced assets will decrease the net investment.

A capital budgeting project's sunk costs and opportunity costs are both relevant to the project investment decision.

A project is expected to decrease a firm's cash expenses by $40,000 annually, and increase its depreciation by $25,000 annually. Given this information, what is the project's expected annual net cash flow? Use a 40% effective tax rate.

Which of the following is a basic principle when estimating a project's cash flows?

If a depreciable asset is sold for less than its book value, then taxes must be paid on the difference.

Your university is considering what to do with the current football stadium. They plan to invest to upgrade the current football stadium or invest to build a new one closer to campus. What kind of projects are these?

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

The Relationship Between Risk and Return

Time Value of Money

Fixed Income Securities: Bonds and Preferred Stock

Common Stock

Cost of Capital

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters

Exam 9: Introduction to Capital Budgeting and Cash Flow Estimation

Which one of the following would not typically be considered a capital budgeting project for a restaurant?

Capital budgeting decisions are based upon cost-benefit analysis. A project's net investment is compared to the project's net cash flows in order to make a decision.

Higher depreciation results in lower profit and higher net cash flow.

When making a capital budgeting decision, cash flows should be estimated on an incremental basis, not a total basis.

Which one of the following is not part of a project's estimated net cash flows?

A project is expected to increase a firm's sales revenue by $12,000 annually, decrease it cash expenses by $18,000 annually, and increase its depreciation by $10,000 annually. Given this information, what is the project's expected annual net cash flow? Use a 40% effective tax rate.

Growth oriented capital budgeting projects typically do not require an increase in net working capital.

In capital budgeting, the cost of starting a project is called the annual net cash flow.

A project's net cash flows are typically cash inflows whereas a project's net investment is typically a cash outflow.

What is net working capital?

The estimation of a project's net cash flows NCF)should not include changes in

The after-tax salvage value from replaced assets will decrease the net investment.

A capital budgeting project's sunk costs and opportunity costs are both relevant to the project investment decision.

A project is expected to decrease a firm's cash expenses by $40,000 annually, and increase its depreciation by $25,000 annually. Given this information, what is the project's expected annual net cash flow? Use a 40% effective tax rate.

Which of the following is a basic principle when estimating a project's cash flows?

If a depreciable asset is sold for less than its book value, then taxes must be paid on the difference.

Your university is considering what to do with the current football stadium. They plan to invest to upgrade the current football stadium or invest to build a new one closer to campus. What kind of projects are these?

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

The Relationship Between Risk and Return

Time Value of Money

Fixed Income Securities: Bonds and Preferred Stock

Common Stock

Cost of Capital

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters