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B.
internalcashflows.
C.
externalcashflows.
D.
erosioneffects.
E.
financingcashflows.
2.Whichofthefollowingshouldbeincludedintheanalysisofanewproduct?
I.moneyalreadyspentforresearchanddevelopmentofthenewproduct
II.reductioninsalesforacurrentproductoncethenewproductisintroduced
III.increaseinaccountsreceivableneededtofinancesalesofthenewproduct
IV.marketvalueofamachineownedbythefirmwhichwillbeusedtoproducethenewproduct
IandIIIonly
IIandIVonly
I,II,andIIIonly
II,III,andIVonly
I,II,III,andIV
3.Thedepreciationtaxshieldisbestdefinedasthe:
amountoftaxthatissavedwhenanassetispurchased.
taxthatisavoidedwhenanassetissoldassalvage.
amountoftaxthatisduewhenanassetissold.
amountoftaxthatissavedbecauseofthedepreciationexpense.
amountbywhichtheaftertaxdepreciationexpenselowersnetincome.
4.Allofthefollowingarerelatedtoaproposedproject.Whichoftheseshouldbeincludedinthecashflowattimezero?
I.purchaseof$1,400ofpartsinventoryneededtosupporttheproject
II.loanof$125,000usedtofinancetheproject
III.depreciationtaxshieldof$1,100
IV.$6,500ofequipmentneededtocommencetheproject
IandIIonly
IandIVonly
I,II,andIVonly
5.Youareconsideringthepurchaseofanewmachine.Youranalysisincludestheevaluationoftwomachineswhichhavedifferinginitialandongoingcostsanddifferinglives.Whichevermachineispurchasedwillbereplacedattheendofitsusefullife.Youshouldselectthemachinewhichhasthe:
longestlife.
highestannualoperatingcost.
lowestannualoperatingcost.
highestequivalentannualcost.
lowestequivalentannualcost.
6.Changesinthenetworkingcapitalrequirements:
canaffectthecashflowsofaprojecteveryyearoftheproject'
slife.
onlyaffecttheinitialcashflowsofaproject.
onlyaffectthecashflowattimezeroandthefinalyearofaproject.
aregenerallyexcludedfromprojectanalysisduetotheirirrelevancetothetotalproject.
reflectonlythechangesinthecurrentassetaccounts.
7.Whichoneofthefollowingisacorrectmethodforcomputingtheoperatingcashflowofaprojectassumingthattheinterestexpenseisequaltozero?
EBIT+D
EBIT-T
NI+D
(Sales-Costs)×
(1-D)×
(1-T)
(1-T)
8.Jefferson&
Sonsisevaluatingaprojectthatwillincreaseannualsalesby$145,000andannualcashcostsby$94,000.Theprojectwillinitiallyrequire$110,000infixedassetsthatwillbedepreciatedstraight-linetoazerobookvalueoverthe4-yearlifeoftheproject.Theapplicabletaxrateis32percent.Whatistheoperatingcashflowforthisproject?
$11,220
$29,920
$43,480
$46,480
$46,620
OCF=($145,000-$94,000)(1-0.32)+($110,000/4)(0.32)=$43,480
9.TheLumberYardisconsideringaddinganewproductlinethatisexpectedtoincreaseannualsalesby$238,000andcashexpensesby$184,000.Theinitialinvestmentwillrequire$96,000infixedassetsthatwillbedepreciatedusingthestraight-linemethodtoazerobookvalueoverthe6-yearlifeoftheproject.Thecompanyhasamarginaltaxrateof32percent.Whatistheannualvalueofthedepreciationtaxshield?
$5,120
$13,160
$25,840
$32,560
$41,840
Depreciationtaxshield=($96,000/6)×
0.32=$5,120
10.PrecisionToolisanalyzingtwomachinestodeterminewhichoneitshouldpurchase.Thecompanyrequiresa15percentrateofreturnandusesstraight-linedepreciationtoazerobookvalueoverthelifeofitsequipment.MachineAhasacostof$892,000,annualoperatingcostsof$28,200,anda4-yearlife.MachineBcosts$1,118,000,hasannualoperatingcostsof$19,500,andhasa5-yearlife.Whichevermachineispurchasedwillbereplacedattheendofitsusefullife.PrecisionToolshouldpurchaseMachine_____becauseitlowersthefirm'
sannualcostbyapproximately_______ascomparedtotheothermachine.
A;
$12,380
$17,404
B;
$16,965
$17,521
11.TheBuckStoreisconsideringaprojectthatwillrequireadditionalinventoryof$216,000andwillincreaseaccountspayableby$181,000.Accountsreceivablearecurrently$525,000andareexpectedtoincreaseby9percentifthisprojectisaccepted.Whatistheproject'
sini