Chp 10 Finance Quiz 2

# Chp 10 Finance Quiz 2 - Question 1 1 All of the following...

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Question 1 1. All of the following are related to a proposed project. Which of these should be included in the cash flow at time zero? I. purchase of \$1,400 of parts inventory needed to support the project II. loan of \$125,000 used to finance the project III. depreciation tax shield of \$1,100 IV. \$6,500 of equipment needed to commence the project Answer I and II only I and IV only II and IV only I, II, and IV only I, II, III, and IV 0.1 points Question 2 1. Eads Industrial Systems Company (EISC) is trying to decide between two different conveyor belt systems. System A costs \$427,000, has a 6-year life, and requires \$112,000 in pretax annual operating costs. System B costs \$517,000, has an 8-year life, and requires \$79,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 33 percent and the discount rate is 24 percent. Which system should the firm choose and why? Answer A; The net present value is \$211,516. A; The net present value is -\$582,720. A; The net present value is -\$314,216. B; The net present value is \$308,222.

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## This note was uploaded on 07/31/2011 for the course FIN 550 taught by Professor Rajneeshsharma during the Summer '11 term at Saint Joseph's University.

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Chp 10 Finance Quiz 2 - Question 1 1 All of the following...

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