practicequestions_mt3_appended_v03_sp07

practicequestions_mt3_appended_v03_sp07 - FIN 301 - page 1...

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FIN 301 - page 1 FIN 301 Financial Management Practice Questions for Midterm 3 – Version B Appended 1. SAGE Publishing Company has a large machine they would like to sell. The machine was purchased for $800,000 six years ago. It had a class life of eight years and was being straight-line depreciated (no half-year convention) to a salvage value of zero. If the tax rate is 38%, and the machine is sold for $250,000, what is the after-tax cash flow? a) $ 155,000 b) $ 124,000 c) $ 231,000 d) $ 95,000 e) $ 76,000 2. A firm needs to raise $250 million for a project. If external financing is used, the firm faces flotation costs of 15% for equity and 4% for debt. If the project is to be financed 70% with equity and 30% with debt, how much cash must the firm raise in order to finance the project? a) $220.8 million b) $223.8 million c) $250.0 million d) $279.3 million e) $283.1 million 3. Given the financial manager’s preference for faster receipt of cash flows, a) a longer depreciable life is preferred to a shorter one. b) a shorter depreciable life is preferred to a longer one. c) the manager is not concerned with depreciable lives, because depreciation is a non-cash expense. d) the manager is not concerned with depreciable lives, because once purchased, depreciation is considered a sunk cost. e) More than one of the above are true
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FIN 301 - page 2 4. You are advising a friend who is attempting to decide whether or not to drop one of the courses they are currently enrolled in. If they drop, they will forfeit the money spent on tuition. Which of the following regarding the drop decision is inconsistent with capital budgeting principles? I. Remaining in the class means you must give up your part-time job. II. The tuition cost for the class was outrageous, $2,000 per credit hour. III. If you drop the class, you can sell the textbook now for $30 at the bookstore. a) I only b) II only c) I and III only d) II and III only e) I, II, and III 5. Spacely Sprockets Inc. is evaluating the purchase of a new sprocket fabricating machine to replace their old one. The new machine costs $1,000,000 and will be straight-line depreciated (no half-year convention) to zero over a six-year class life. The new machine increases annual sales by $275,000.
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This note was uploaded on 11/11/2011 for the course FIN 534 taught by Professor Nalla during the Spring '08 term at Strayer.

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practicequestions_mt3_appended_v03_sp07 - FIN 301 - page 1...

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