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Chapter9 - 1.Relevant costs are A Future B Quantifiable C...

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Unformatted text preview: 1.Relevant costs are? A. Future. B. Quantifiable. C. Differential. D. All of the above. E. None of the above. D. All of the Above. Class discussions. See Ch. 9 p. 257. Please go to the next question. 2. We need only focus on the project's resulting incremental cash flows. This is called? A. Side Effects. B. Net Working Capital. C. The Stand-Alone Principle. D. Sunk Costs. E. None of the above. C. The Stand-Alone Principle. Review Chapter 9 page 257 Please go to the next question. 3. What is capital rationing? A. This exists when an organization has profitable investments available but it cannot get the funds to undertake them. B. This takes into account the managerial options implicit in a project. C. This approach is useful in pinpointing the areas where the forecasting risk is especially severe. A. Profitable investments no funds available. Ch. 9 See page 280. Please go to the next question. 4. RKR Inc. has an asset that costs $800,000 and is depreciated straight-line to zero over its eight-year useful life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $400,000. If the relevant tax rate is 40 percent, what is the after-tax cash flow from the sale of this asset? A. $300,000. B.$360,000. C.$400,000. D.$500,000. B. $360,000 Book Value = $800,000 - 800,000 (5/8) = $300,000. The asset is sold at a gain to book value so the gain is taxable. After-tax salvage value = $400,000 + (300,000 - 400,000) (.40) = $360,000 Variation of homework problem #7 on page 265 ...
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