Chapter 10 Quiz A
Student Name _________________________
Student ID ____________
Round all answers to whole dollars.
________ 1.
Four years ago, Cheese Snacks, Inc. purchased land located beside their factory at a price of $739,000. The
land is currently valued at $825,000. The company is now considering building a new warehouse on that
land. The construction cost of the warehouse is estimated at $425,000. In addition, $35,000 worth of grading
will be required to prepare the construction site. What is the initial cash outflow that should be used when
analyzing this project?
a. $1,164,000
b. $1,199,000
c. $1,250,000
d. $1,285,000
________ 2.
You are analyzing a proposed 3year project. You expect to sell 11,500 units per year at an average
selling price of $19.99 per unit. The initial cash outlay for fixed assets will be $120,000. These assets will be
depreciated using straightline depreciation to a zero book value over the life of the project. Fixed costs are
expected to be $85,996 and variable costs should be $7.65 per unit. What is the expected operating cash flow
if the tax rate is 35 percent?
a. $10,344
b. $40,344
c. $50,344
d. $55,914
________ 3.
You just purchased some new equipment costing $685,000. The equipment is classified as 5year property for
MACRS. What is the book value of the equipment at the end of year 3?
MACRS 5year property
Year
Rate
1
20.00%
2
32.00%
3
19.20%
4
11.52%
5
11.52%
6
5.76%
a. $197,280
b. $301,093
c. $356,200
d. $487,720
_______
4.
You purchased some fixed assets four years ago at a cost of $129,600. You have been depreciating these
assets using straightline depreciation to a zero book value over 7 years. Today, you are selling these assets
for $74,900. What is the aftertax cash flow from this sale if the applicable tax rate is 34 percent?
a. $12,776
b. $13,619
c. $54,700
d. $68,319
________ 5.
You are considering the purchase of a building that you plan to depreciate using straightline depreciation
over thirty years. The cost will be $628,900. What is the value of the annual depreciation tax shield if the tax
rate is 34 percent?
a. $7,128
b. $14,256
c. $18,709
d. $20,963
________6.
You need a metal cutting machine for your operations. Your current machine is worn out so you are trying to
decide which one of two machines to buy as a replacement. Whichever machine you purchase will likewise
be replaced after its useful life. Machine A costs $221,000 and costs $16,000 a year to operate over a
3year life. Machine B costs $190,000 and costs $21,000 to operate over a 2year life. Given this
information, which one of the following statements is correct if the applicable discount rate is 9 percent?
a. Machine A cuts the annual cost by $25,702 as compared to machine B.
b. Machine B cuts the annual cost by $34,559 as compared to machine A.
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 Spring '08
 staff
 Finance, Depreciation, annual cost

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