Quiz Paper A 1, Quiz Paper B 6
The NPV break-even level of sales will be _____ the accounting break-even level.
A) higher than
C) equal to
either higher or lower than
Quiz Paper A 2, Quiz Paper B 7
A firm had after-tax income last year of $1.5 million. Its depreciation expenses were $0.8
million, its total cash flow was $1.5 million, and the cash flow from investments
(disinvestment) was 0, what happened to working capital during the year?
A) Working capital did not change.
B) Working capital decreased by $0.8 million.
C) Working capital decreased by $1.5 million.
D) Working capital increased by $0.8 million.
Cash flow = net income + depreciation – increase in NWC
1.5 = 1.5 + 0.8 –
NWC = $0.8 million
Therefore, working capital increased by $0.8 million.
Quiz Paper A 3, Quiz Paper B 8
Calculate the NPV break-even level of sales for a project requiring an investment of
$3,000,000 today and providing as cash flows: .15
sales less – $250,000 every year from
year 1. Assume the project will generate these cash flows for 10 years and that the discount
rate is 10%.
A) $ 3,254,890
B) $ 3,504,890
C) $ 4,921,575
NPV = PV (10-year cash flows) – Investment = 0
Therefore: PV (10-year cash flows) = Investment = 3,000,000
Cash flows each year from year 1 to 10 is computed as follows:
I = 10, N = 10, FV = 0, PV = (-)3,000,000
PMT = 488,236.18
Cash flows every year = 488,236.18 = (.15 sales - 250,000)
So sales = 4,921,575 every year
Quiz Paper A 4, Quiz Paper B 9
Given the following information, calculate the depreciation tax shield
=Profit before tax