practice questions for busi408 final nosol

# practice questions for busi408 final nosol - practice...

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practice questions for final Student: ___________________________________________________________________________ 1. This chapter introduced three new methods for calculating project operating cash flow (OCF). Under what circumstances is each method appropriate? 2. Your firm purchased a warehouse for \$335,000 six years ago. Four years ago, repairs were made to the building which cost \$60,000. The annual taxes on the property are \$20,000. The warehouse has a current book value of \$268,000 and a market value of \$295,000. The warehouse is totally paid for and solely owned by your firm. If the company decides to assign this warehouse to a new project, what value, if any, should be included in the initial cash flow of the project for this building? A. \$0 B. \$268,000 C. \$295,000 D. \$395,000 E. \$515,000 &

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3. You own a house that you rent for \$1,200 a month. The maintenance expenses on the house average \$200 a month. The house cost \$89,000 when you purchased it several years ago. A recent appraisal on the house valued it at \$210,000. The annual property taxes are \$5,000. If you sell the house you will incur \$20,000 in expenses. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office? A. \$89,000 B. \$120,000 C. \$185,000 D. \$190,000 E. \$210,000 4. Big Joe's owns a manufacturing facility that is currently sitting idle. The facility is located on a piece of land that originally cost \$129,000. The facility itself cost \$650,000 to build. As of now, the book value of the land and the facility are \$129,000 and \$186,500, respectively. Big Joe's received an offer of \$590,000 for the land and facility last week. The firm rejected this offer even though it was told that it is a reasonable offer in today's market. If Big Joe's were to consider using this land and facility in a new project, what cost, if any, should it include in the project analysis? A. \$0 B. \$315,500 C. \$590,000 D. \$650,000 E. \$779,000 5. The most valuable investment given up if an alternative investment is chosen is a(n): A. salvage value expense. B. net working capital expense. C. sunk cost. D. opportunity cost. E. erosion cost. &
6. A project is expected to create operating cash flows of \$22,500 a year for three years. The initial cost of the fixed assets is \$50,000. These assets will be worthless at the end of the project. An additional \$3,000 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 10%? A. \$2,208.11 B. \$2,954.17 C. \$4,306.09 D. \$5,208.11 E. \$5,954.17 7. A project will produce operating cash flows of \$45,000 a year for four years. During the life of the project, inventory will be lowered by \$30,000 and accounts receivable will increase by \$15,000. Accounts payable will decrease by \$10,000. The project requires the purchase of equipment at an initial cost of \$120,000. The equipment will be depreciated straight-line to a

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practice questions for busi408 final nosol - practice...

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