ADMS3530-Final-S05-Sol

ADMS3530-Final-S05-Sol - Name _ Section _ ID # _ (Prof....

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Page 1 Name ___________________________ Section _____ ID # ______________________ (Prof. Domian’s sections: A - Tuesday 2 pm; B - Tuesday 7 pm; C - Thursday 4 pm) (Prof. Li’s section: D - Wednesday 4 pm) AK/ADMS 3530 Final Exam Summer 2005 This exam consists of 50 multiple choice questions. Choose the response which best answers each question. Circle your answers below, and fill in your answers on the bubble sheet. Only the bubble sheet is used to determine your exam score. BE SURE TO BLACKEN THE BUBBLES CORRESPONDING TO YOUR STUDENT NUMBER. Although the exam period is three hours, you should be able to finish in two hours. A good strategy is to pace yourself for a two-hour completion. You will then have the final hour to check your work, or leave early. 1. For a firm with a DOL of 3.5, an increase in sales of 6% will: a) increase pre-tax profits by 2.5%. b) increase pre-tax profits by 3.5%. c) increase pre-tax profits by 21.0%. d) increase pre-tax profits by 1.71%. 2. A new project requires an increase in both current assets and current liabilities of $125,000 each. What is the overall impact on net working capital investment? a) An increase of zero. b) An increase of $125,000. c) An increase of $250,000. d) An increase of $62,500, when averaged over the life of the project. 3. A firm generates sales of $250,000, depreciation expense of $50,000, taxable income of $50,000, and has a 35% tax rate. What is the difference between its cash flow and its net income? a) $17,500 b) $50,000 c) $67,500 d) $82,500
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Page 2 The next seven questions are based on the following common information. Bleeper Industries is considering a project which costs $100,000 and produces operating cash flows (excluding CCA tax shields) of $23,000 per year for six years. The project requires a $5,000 increase in net working capital in Year 0; the working capital is recovered in Year 7, one year after the end of the operating cash flows. The CCA rate is 15% (declining balance method) and the half-year rule applies. Initially assume there is zero salvage value. The discount rate is 14% and the tax rate is 40%. 4. (See common information above.) What is Bleeper’s total cash flow in Year 0, excluding CCA tax shields? a) -$105,000 b) -$100,000 c) -$95,000 d) -$5,000 5. (See common information above.) What is Bleeper’s CCA in Year 1? a) $7,500 b) $15,000 c) $16,667 d) -$5,000 6. (See common information above.) What is the present value of Bleeper’s operating cash flows, excluding CCA tax shields? a) $53,668 b) $82,800 c) $89,439 d) $138,000 7. (See common information above.) What is the present value of Bleeper’s working capital recovery, which occurs in Year 7? a) $0 b) $2000 c) $2280 d) $3000
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Page 3 8. (See common information above.) What is the present value of Bleeper’s CCA tax shield? a)
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ADMS3530-Final-S05-Sol - Name _ Section _ ID # _ (Prof....

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