Chapter 12 Quiz

Chapter 12 Quiz - 5.8 million Depreciation 2.9 million...

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Chapter 12 Quiz Question 1 (1 point) Washington Industries is considering an expansion. The necessary equipment would be purchased for \$8 million, and it would also require an additional \$3.5 million investment in working capital. The tax rate is 30 percent. Last year, the company spent and expensed \$400,000 on research related to the project. The company plans to house the project in an unused building it owns. If the building were sold, it would net \$1.2 million after taxes and real estate commissions. What is the initial investment outlay for this project? Student response: Percent Value Correct Response Student Response Answer Choices 0.0% a. \$11.9 million 0.0% b. \$11.5 million 0.0% c. \$13.1 million 100.0% d. \$12.7 million 0.0% e. \$8.9 million Score:1 / 1 Question 2 (1 point) Hoover Communications is trying to estimate the first-year operating cash flow for a proposed project on which it has collected the following information: Sales revenues \$12.9 million Operating costs (excluding depreciation)

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Unformatted text preview: 5.8 million Depreciation 2.9 million Interest expense 1.8 million Hoovers financial staff has also determined that this project would cannibalize one of the firms other projects by \$1.4 million of cash flow (before taxes) per year. Hoover has a 40 percent tax rate, and its WACC is 12 percent. Calculate the projects operating cash flow for Year 1. Student response: Percent Value Correct Response Student Response Answer Choices 0.0% a. \$1,680,000 0.0% b. \$2,520,000 0.0% c. \$5,420,000 100.0% d. \$4,580,000 0.0% e. \$3,500,000 Score:1 / 1 Question 3 (1 point) Lincoln Manufacturing is now in the final year of a project. The equipment originally cost \$50 million, of which 90 percent has been depreciated. Lincoln can sell the used equipment today for \$7 million, and its tax rate is 45 percent. What is the equipments after-tax net salvage value? Student response: 100.0% a. \$6,100,000...
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This note was uploaded on 07/25/2011 for the course FINC 3334 taught by Professor Whitworth during the Winter '10 term at University of Houston.

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Chapter 12 Quiz - 5.8 million Depreciation 2.9 million...

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