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? a. -$12,000 b. $0 c. $8,000 d. $20,000 ________ 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? a. -$2,515,000 b. -$2,765,000 c. -$3,015,000 d. -$4,515,000 ________ 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? a. $24,000 b. $34,000 c. $45,600 d. $55,600 ________ 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? a. $28,380 b. $30,620 c. $47,780 d. $59,000 ________ 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
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This note was uploaded on 12/11/2010 for the course FIN FIN201 taught by Professor Mohdhassan during the Spring '10 term at American University of Sharjah.

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fmt10 - Chapter 10 Making Capital Investment Decisions...

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