Question 1

A project requires the purchase of $587,000 of equipment that will be depreciated straight-line to a zero book value over the four-year life of the project. The equipment can be scraped at the end of the project for 33 percent of its original cost. Annual sales from this project are estimated at $625,000 with cash expenses of $487,000. Net working capital equal to 12 percent of sales will be required to support the project. The required return is 13 percent and the tax rate is 21 percent. What is the cash flow in Year 2 of the project? Ignore bonus depreciation.

Accepted Answer

A)   $91,080
B)   −$55,670
C)   $139,838
D)   $105,560
E)   −$5,775F) A) and B)
G) A) and C)

Question 2

The stand-alone principle advocates that project analysis should be based solely on which one of the following costs?

Accepted Answer

A)   Sunk
B)   Total
C)   Variable
D)   Incremental
E)   FixedF) All of the above
G) C) and D)

Question 3

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's:

Accepted Answer

A)   incremental cash flows.
B)   internal cash flows.
C)   external cash flows.
D)   erosion effects.
E)   financing cash flows.F) All of the above
G) D) and E)

Question 4

Which one of the following would make a mutually exclusive project unacceptable?

Accepted Answer

A)   Cash inflow for net working capital at Time 0
B)   Requiring fixed assets that would have no salvage value
C)   An equivalent annual cost that exceeds that of an alternative project
D)   Lack of revenue generation
E)   A depreciation tax shield that exceeds the value of the interest expenseF) None of the above
G) C) and D)

Exam 10: Making Capital Investment Decisions

The stand-alone principle advocates that project analysis should be based solely on which one of the following costs?

Correct Answer
verified

Which one of the following would make a mutually exclusive project unacceptable?

Correct Answer
verified

Correct Answer
verified

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's:

Correct Answer
verified

Exam 10: Making Capital Investment Decisions

The stand-alone principle advocates that project analysis should be based solely on which one of the following costs?

Correct AnswerverifiedShow Answer

Which one of the following would make a mutually exclusive project unacceptable?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified