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# fmt10 - Chapter 10 Making Capital Investment Decisions...

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Chapter 10 Making Capital Investment Decisions Chapter 10 Quiz A Student Name _________________________ Student ID ____________ Round all answers to whole dollars. ________ 1. You just purchased some new equipment costing \$459,000. The equipment is classified as 7-year property for MACRS. What is the total accumulated depreciation expense at the end of year 2? MACRS 7-year property Year Rate 1 14.29% 2 24.49% 3 17.49% 4 12.49% 5 8.93% 6 8.93% 7 8.93% 8 4.45% a. \$112,409 b. \$178,000 c. \$197,282 d. \$281,000 ________ 2. A proposed project is expected to decrease accounts receivable by \$10,000, decrease inventory by \$4,000, and increase accounts payable by \$6,000. What is the amount of the initial cash flow for this project? ________ 3. Last year, Bottlers, Inc. purchased land located beside their factory at a price of \$1,500,000 plus \$250,000 in real estate fees. Today, the land has a market value of \$2,000,000. The company is now considering building a new warehouse on that land. The construction cost of the warehouse is estimated at \$675,000. In addition, \$90,000 worth of grading will be required to prepare the construction site. What is the initial cash flow of this project? ________ 4. You are analyzing a proposed 4-year project. You expect to sell 20,000 units per year at an average selling price of \$5 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. The fixed assets will be worthless at the end of the project. Fixed costs are expected to be \$8,000 and variable costs should be \$1.90 per unit. The project requires an initial investment in net working capital of \$10,000 which will be recovered in full at the end of the project’s life. What is the total project cash flow at the end of year 4 if the tax rate is 35 percent? ________ 5. You purchased some fixed assets six years ago at a cost of \$165,700. You have been depreciating these assets using straight-line depreciation to a zero book value over 10 years. Today, you are selling these assets for \$62,500. What is the after-tax cash flow from this sale if the applicable tax rate is 35 percent? a. \$61,177 b. \$62,500 c. \$63,823 d. \$66,280 ________ 6. You are considering a project that will generate sales of \$89,000, costs of \$56,000, and annual depreciation of \$26,000. What is the value of the operating cash flow if the tax rate is 34 percent? ________ 7. You need a new oven for your bakery. Your current oven is worn out so you are trying to decide which one of two ovens to buy as a replacement. Whichever oven you purchase will be replaced after its useful life. Oven A costs \$25,000 and costs \$3,000 a year to operate over an 8-year life. Oven B costs \$20,000 and costs \$4,500 a year to operate over a 6-year life. Given this information, which one of the following statements is correct if the applicable discount rate is 10 percent?

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fmt10 - Chapter 10 Making Capital Investment Decisions...

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