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Unformatted text preview: (Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) PART I New and Revised Carryover Problems and Questions Multiple Choice: Problems Note to Professors: We designated many of these problems as being EASY or MEDIUM. This indicates that they are not conceptually hard. However, some of them require a good bit of arithmetic, which will lengthen the time it takes students to work them. We tried to use constant cash flows, straight line depreciation (except where we wanted to illustrate MACRS depreciation), and short project lives, but illustrating the cash flow estimation process still requires a good bit of simple arithmetic. This factor should not be important for do-it-at-home tests, but it should be considered when making up timed tests. Annual operating cash flows, depr'n given Answer: a EASY 1 . You work for Alpha Inc., and you must estimate the Year 1 operating net cash flow for a proposed project with the following data. What is the Year 1 operating cash flow? Sales $11,000 Depreciation $4,000 Other operating costs $6,000 Tax rate 35% a. $4,650 b. $4,800 c. $4,950 d. $5,100 e. $5,250 Annual operating cash flows, depr'n given Answer: c EASY 2 . Your company, Beta Corporation, is considering a new project which you must analyze. Based on the following data, what is the project's Year 1 operating cash flow? Sales $22,000 Depreciation $8,000 Other operating costs $12,000 Tax rate 35% a. $9,100 b. $9,200 c. $9,300 d. $9,400 e. $9,500 Chapter 12: Cash Flow Estimation and Risk Analysis Page 185 CHAPTER 12 CASH FLOW ESTIMATION AND RISK ANALYSIS Annual operating cash flows: straight line depreciation Answer: d EASY 3 . Delta Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's operating cash flow during Year 1? Equipment cost (depreciable basis) $75,000 Straight line depreciation rate 33.33% Sales $60,000 Operating costs excl. deprn $25,000 Tax rate 35% a. $27,000 b. $28,500 c. $30,000 d. $31,500 e. $33,000 Ann. op. cash flows, depr'n given, interest given Answer: e EASY/MEDIUM 4 . As a member of Gamma Corporation's financial staff, you must estimate the Year 1 operating net cash flow for a proposed project with the following data. What is the Year 1 operating cash flow? Sales $33,000 Depreciation $10,000 Other operating costs $17,000 Interest expense $4,000 Tax rate 35% a. $ 9,500 b. $10,600 c. $11,700 d. $12,800 e. $13,900 Ann. op. cash flows, depr'n given, interest given Answer: b EASY/MEDIUM 5 . You work for the Delta Company, which is considering a new project whose data are shown below. What is the project's operating cash flow during Year 1?...
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- Spring '10