Chapter 10 Quiz A
Student Name _________________________
Student ID ____________
Round all answers to whole dollars.
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?
You are analyzing a proposed 3-year 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 straight-line 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?
You just purchased some new equipment costing $685,000. The equipment is classified as 5-year property for
MACRS. What is the book value of the equipment at the end of year 3?
MACRS 5-year property
You purchased some fixed assets four years ago at a cost of $129,600. You have been depreciating these
assets using straight-line depreciation to a zero book value over 7 years. Today, you are selling these assets
for $74,900. What is the after-tax cash flow from this sale if the applicable tax rate is 34 percent?
You are considering the purchase of a building that you plan to depreciate using straight-line 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?
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
3-year life. Machine B costs $190,000 and costs $21,000 to operate over a 2-year 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.