Practice Final

Practice Final - Engineering Economy Practice Exam 1. In...

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Engineering Economy Practice Exam
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1. In the Canadian tax system, the sale of an asset in a particular asset class can simultaneously trigger a depreciation recapture and a loss on disposal. A) T B) F 2. For given demand and supply schedules, the market equilibrium is always in a price interval in which demand is elastic because the total consumer expenditure in this price range decreases. A) T B) F 3. When using the equivalent annual value criterion to compare equipment alternatives, it is assumed that continuous replace- ments are made for as long as the service of such equipment is required. A) T B) F
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4. A capital gain occurs when a depreciable asset is sold for more than its undepreciated balance at the time of sale, but for less than its purchase price. A) T B) F 5. In the Canadian tax system, assets belonging to a particular class depreciated by the declining-balance method are grouped into one common pool and depreciated together. A) T B) F 6. The discounted payback period is superior to the payback period because it considers the cash flows that occur beyond the discounted capital recovery period. A) T B) F
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7. When using an integrated company basis of taxation in project evaluation, any excess of operating expenses and tax allowances over a project's revenue in a particular year is assumed to be fully absorbed by other taxable corporate income of the company. A) T B) F 8. A change in supply to higher quantity levels is reflected by a vertical upward shift of the supply curve. A) T B) F 9. The law of diminishing marginal returns states that decreasing amounts of output will inevitably be obtained from successive additions of equal amounts of variable input in a system where fixed resources have achieved their optimum efficiency. A) T B) F
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10. When using the capital tax factor on a capital expenditure, it is assumed that depreciation allowances generated by that capital expenditure can be fully absorbed (i.e. there is enough net income before allowances and taxes) in the year in which they are claimed. A) T B) F 11. Assume that a project requires additions to working capital in each year of its life, all to be recovered at the end along with the initial input. In this case, the present value at the beginning of the project’s life (i.e. time 0) of the recovered working capital will exceed the total outlays of working capital. A) T B) F 12. Any regular bond with any maturity period will have a market value equal to its face value if the coupon rate is the same as the going market rate (expressed as a nominal rate with the same compounding interval as that of the bond). A) T B) F
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Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflows from the sale of stock, and cash outflows to pay dividends or repurchase stock are called: A) financing flows. B)
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This note was uploaded on 09/03/2010 for the course MIME 310 taught by Professor Bilido during the Summer '08 term at McGill.

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Practice Final - Engineering Economy Practice Exam 1. In...

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