36.Tax shield refers to a reduction in taxes created by:a.a reduction in sales.b.an increase in interest expense.c.noncash expenses.d.a project’s incremental expenses.e.opportunity costs.Difficulty level: EasyCOST-CUTTINGc37.A project which is designed to improve the manufacturing efficiency of a firm but will generate no additional sales is referred to as a(n) _____ project.Difficulty level: Easy10
EQUIVALENT ANNUAL COSTc38.Toni’s Tools is comparing machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs, differing machine lives, and will be replaced when worn out. These machines should be compared using:Difficulty level: MediumEQUIVALENT ANNUAL COSTe39.The equivalent annual cost method is useful in determining:Difficulty level: MediumIII. PROBLEMSRELEVANT CASH FLOWSd40.Marshall’s & Co. purchased a corner lot in Eglon City five years ago at a cost of $640,000. The lot was recently appraised at $810,000. At the time of the purchase, the company spent $50,000 to grade the lot and another $4,000 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1.2 million. What amount should be used as the initial cash flow for this building project?a.$1,200,000b.$1,840,000c.$1,890,000d.$2,010,000e.$2,060,000Difficulty level: Medium7-11
CHAPTER 10RELEVANT CASH FLOWSe41.Jamestown Ltd. currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land ten years ago at a cost of $250,000. Today, the land is valued at $425,000. The grading and excavation work necessary to build on the land will cost $15,000. The company currently has some unused equipment which it currently owns valued at $60,000. This equipment could be used for producing awnings if $5,000 is spent for equipment modifications. Other equipment costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project?Difficulty level: MediumRELEVANT CASH FLOWS
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