Q&A Hero

Q: HiLo Mfg. is analyzing a project with anticipated sales of 12,500 units, 2 percent. The variable cost per unit is $13, 2 percent, and the expected fixed costs are $237,000, 1 percent. The sales price is estimated at $69 a unit, 3 percent. The depreciation expense is $68,000 and the tax rate is 22 percent. What is the earnings before interest and taxes under the base-case scenario? A) $368,500 B) $421,000 C) $395,000 D) $414,900 E) $427,500

Q: The Creamery is analyzing a project with expected sales of 5,700 units, 5 percent. The expected variable cost per unit is $168 and the expected fixed costs are $424,000. Cost estimates are considered accurate within a 3 percent range. The depreciation expense is $156,000. The sales price is estimated at $339 per unit, 5 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis with fixed costs of $425,000. What is the OCF given this analysis? A) $416,511 B) $385,350 C) $467,023 D) $394,874 E) $421,300

Q: Precise Machinery is analyzing a proposed project. The company expects to sell 7,500 units, 10 percent. The expected variable cost per unit is $314 and the expected fixed costs are $647,000. Cost estimates are considered accurate within a 4 percent range. The depreciation expense is $187,000. The sales price is estimated at $849 per unit, give or take 2 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $850. What is the operating cash flow based on this analysis? A) $2,703,940 B) $2,293,089 C) $1,986,675 D) $2,354,874 E) $2,284,837

Q: Precise Machinery is analyzing a proposed project that is expected to have sales of 2,450 units, 8 percent. The expected variable cost per unit is $246 and the expected fixed costs are $309,000. Cost estimates are considered accurate within a 3 percent range. The depreciation expense is $106,000. The sales price is estimated at $599 per unit, 2 percent. What is the amount of the total costs per unit under the worst-case scenario? A) $448.58 B) $404.16 C) $366.67 D) $338.23 E) $394.58

Q: New Town Instruments is analyzing a proposed project. The company expects to sell 1,600 units, 3 percent. The expected variable cost per unit is $220 and the expected fixed costs are $438,000. Cost estimates are considered accurate within a 2 percent range. The depreciation expense is $64,000. The sales price is estimated at $647 per unit, 2 percent. What is the sales revenue under the worst-case scenario? A) $1,086,825 B) $896,201 C) $984,061 D) $1,014,496 E) $932,017

Q: The CFO of Edward's Food Distributors is continually receiving capital funding requests from its division managers. These requests are seeking funding for positive net present value projects. The CFO continues to deny all funding requests due to the financial situation of the company. Apparently, the company is: A) operating at the accounting break-even point. B) operating at the financial break-even point. C) facing hard rationing. D) operating with zero leverage. E) operating at maximum capacity.

Q: Brubaker & Goss has received requests for capital investment funds for next year from each of its five divisions. All requests represent positive net present value projects. All projects are independent. Senior management has decided to allocate the available funds based on the profitability index of each project since the company has insufficient funds to fulfill all of the requests. Management is following a practice known as: A) scenario analysis. B) sensitivity analysis. C) leveraging. D) hard rationing. E) soft rationing.

Q: PC Enterprises wants to commence a new project but is unable to obtain the financing under any circumstances. This firm is facing: A) financial deferral. B) financial allocation. C) capital allocation. D) marginal rationing. E) hard rationing.

Q: The procedure of allocating a fixed amount of funds for capital spending to each business unit is called: A) marginal spending. B) capital preservation. C) soft rationing. D) hard rationing. E) marginal rationing.

Q: Bell Weather Goods has several proposed independent projects that have positive NPVs. However, the firm cannot initiate any of the projects due to a lack of financing. This situation is referred to as: A) financial rejection. B) project rejection. C) soft rationing. D) marginal rationing. E) capital rationing.

Q: Uptown Promotions has three divisions. As part of the planning process, the CFO requested that each division submit its capital budgeting proposals for next year. These proposals represent positive net present value projects that fall within the long-range plans of the firm. The requests from the divisions are $4.2 million, $3.1 million, and $6.8 million. For the firm as a whole, management has limited spending to $10 million for new projects next year even though the firm could afford additional investments. This is an example of: A) scenario analysis. B) sensitivity analysis. C) an operating leverage application. D) soft rationing. E) hard rationing.

Q: The degree of operating leverage is equal to: A) 1 + OCF/(FC + VC). B) 1 + OCF/FC. C) 1 + FC/OCF. D) 1 + VC/OCF. E) 1 − (FC + VC)/OCF.

Q: Which one of the following will best reduce the risk of a project by lowering the degree of operating leverage? A) Hiring additional employees rather than using temporary outside contractors B) Subcontracting portions of the project rather than purchasing new equipment to do all the work in-house C) Buying equipment rather than leasing it short-term D) Lowering the projected selling price per unit E) Changing the proposed labor-intensive production method to a more capital intensive method

Q: Which one of the following characteristics best describes a project that has a low degree of operating leverage? A) High variable costs relative to the fixed costs B) Relatively high initial cash outlay C) OCF that is highly sensitive to the sales quantity D) High level of forecasting risk E) High depreciation expense

Q: You are considering a project and are concerned about the reliability of the cash flow forecasts. To reduce any potentially harmful results from accepting this project, you should consider: A) lowering the degree of operating leverage. B) lowering the contribution margin per unit. C) increasing the initial cash outlay. D) increasing the fixed costs per unit. E) lowering the operating cash flow.

Q: Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold? A) Degree of sensitivity B) Degree of operating leverage C) Accounting break-even D) Cash break-even E) Contribution margin

Q: Operating leverage is the degree of dependence a firm places on its: A) variable costs. B) fixed costs. C) sales. D) operating cash flows. E) depreciation tax shield.

Q: Assume a project has a discounted payback that equals the project's life. The project's sales quantity must be at which one of these break-even points? A) Accounting B) Leveraged C) Marginal D) Cash E) Financial

Q: By definition, which one of the following must equal zero at the cash break-even point? A) Net present value B) Internal rate of return C) Contribution margin D) Net income E) Operating cash flow

Q: Assume both the discount and tax rates are positive values. At the financial break-even point, the: A) payback period equals the project's life. B) NPV is negative. C) OCF is zero. D) contribution margin per unit equals the fixed costs per unit. E) IRR equals the required return.

Q: Given the following, which feature identifies the most desirable level of output for a project? A) Operating cash flow equal to the depreciation expense B) Payback period equal to the project's life C) Discounted payback period equal to the project's life D) Zero IRR E) Zero operating cash flow

Q: Theresa is analyzing a project that currently has a projected NPV of zero. Which one of the following changes that she is considering is most apt to cause that project to produce a positive NPV instead? Consider each change independently. A) Decrease the sales price B) Increase the materials cost per unit C) Decrease the labor hours per unit produced D) Decrease the sales quantity E) Increase the amount of the initial investment in net working capital

Q: You would like to know the minimum level of sales that is needed for a project to be accepted based on its net present value. To determine that sales level you should compute the: A) contribution margin per unit and set that margin equal to the fixed costs per unit. B) degree of operating leverage at the current sales level. C) accounting break-even point. D) cash break-even point. E) financial break-even point.

Q: Which one of these is most associated with an IRR of negative 100 percent? A) Degree of operating leverage B) Accounting break-even point C) Contribution margin D) Simulation analysis E) Cash break-even point

Q: Which one of the following represents the level of output where a project produces a rate of return just equal to its requirement? A) Capital break-even B) Cash break-even C) Accounting break-even D) Financial break-even E) Internal break-even

Q: When the operating cash flow of a project is equal to zero, the project is operating at the: A) maximum possible level of production. B) minimum possible level of production. C) financial break-even point. D) accounting break-even point. E) cash break-even point.

Q: Which one of the following characteristics relates to the cash break-even point for a given project? A) The project never pays back. B) The discounted payback period equals the project's life. C) The NPV is equal to zero. D) The IRR equals the required rate of return. E) The OCF is equal to the depreciation expense.

Q: A project that has a projected IRR of negative 100 percent will also have a(n): A) discounted payback period equal to the life of the project. B) operating cash flow that is positive and equal to the depreciation. C) net present value that is negative and equal to the initial investment. D) payback period that is exactly equal to the life of the project. E) net present value that is equal to zero.

Q: Valerie just completed analyzing a project. Her analysis indicates that the project will have a six-year life and require an initial cash outlay of $120,000. Annual sales are estimated at $189,000 and the tax rate is 21 percent. The net present value is negative $120,000. Based on this analysis, the project is expected to operate at the: A) maximum possible level of production. B) minimum possible level of production. C) financial break-even point. D) accounting break-even point. E) cash break-even point.

Q: A project that has a payback period exactly equal to the project's life is operating at: A) its maximum capacity. B) the financial break-even point. C) the cash break-even point. D) the accounting break-even point. E) a zero level of output.

Q: Webster Iron Works started a new project last year. As it turns out, the project has been operating at its accounting break-even level of output and is now expected to continue at that level over its lifetime. Given this, you know that the project: A) will never pay back. B) has a zero net present value. C) is operating at a higher level than if it were operating at its cash break-even level. D) is operating at a higher level than if it were operating at its financial break-even level. E) is lowering the total net income of the firm.

Q: A decrease in which one of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used and ignore taxes. A) Sales price per unit B) Management salaries C) Variable labor costs per unit D) Initial fixed asset purchases E) Fixed costs

Q: Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output? A) IRR and OCF B) Net income and contribution margin C) IRR and net income D) OCF and NPV E) Net income and NPV

Q: The contribution margin per unit is equal to the: A) sales price per unit minus the total costs per unit. B) variable cost per unit minus the fixed cost per unit. C) sales price per unit minus the variable cost per unit. D) pretax profit per unit. E) aftertax profit per unit.

Q: Consider a project to supply 70 million postage stamps annually for the next five years. You have an idle parcel of land available that cost $279,000 five years ago; if the land were sold today, it would net you $310,000, aftertax. You estimate the land can be sold for $400,000 after taxes in five years. You will need to install $1,867,000 in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project's five-year life. Ignore bonus depreciation. The equipment can be sold for $950,000 at the end of the project. You will also need $32,000 in initial net working capital for the project, and an additional investment of $5,000 every year starting with Year 1. All net working capital will be recovered when the project ends. Your production costs are .21 cents per stamp, and you have fixed costs of $440,000 per year. Assume the tax rates are suddenly increased such that a tax rate of 35 percent is once again applicable, and your required return on this project is 14 percent. What bid price per stamp should you submit? A) $.01992 B) $.02264 C) $.01667 D) $.01619 E) $.02192

Q: EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has a six-year life, and requires $83,000 in pretax annual operating costs. System B costs $369,000, has a five-year life, and requires $92,000 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 23 percent and the discount rate is 14.2 percent. Which system should the firm choose and why? A) A; The net present value is −$398,516. B) B; The net present value is −$553,041. C) A; The net present value is −$547,836. D) B; The net present value is −$608,222. E) B: The net present value is −$490,696.

Q: Chapman Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine for $390,000 is estimated to result in $135,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a pretax salvage value at the end of the project of $198,000. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. Ignore bonus depreciation. The press also requires an initial investment in inventory of $8,000, along with an additional $1,500 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The shop's tax rate is 21 percent and its discount rate is 16 percent. Should the firm buy and install the machine? Why or why not? A) Yes; The net present value is $47,048.86. B) No; The net present value is −$36,329.09. C) No; The net present value is $56,652.88. D) Yes; The net present value is $44,319.97. E) Yes; The net present value is $56,329.09.

Q: Heer Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next four years, and you've decided to bid on the contract. It will cost you $765,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that in four years, this equipment can be salvaged for $375,000. Your fixed production costs will be $190,000 per year, and your variable production costs should be $8.20 per carton. You also need an initial investment in net working capital of $59,500, all of which will be recovered when the project ends. Your tax rate is 22 percent and you require a return of 14.5 percent. What bid price per carton should you submit? A) $12.04 B) $10.56 C) $11.37 D) $11.03 E) $11.81

Q: A five-year project has an initial fixed asset investment of $613,600, an initial net working capital investment of $22,200, and an annual operating cash flow of $76,540. The fixed asset is fully depreciated over the life of the project and has no salvage value. The net working capital will be recovered when the project ends. The required return is 11.7 percent. What is the project's equivalent annual cost, or EAC? A) −$248,092.76 B) −$182,309.18 C) −$147,884.01 D) −$235,490.58 E) −$242,212.22

Q: Precision Dyes is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 15 percent and uses straight-line depreciation to a zero book value over the life of its equipment. Ignore bonus depreciation. Machine A has a cost of $462,000, annual aftertax cash outflows of $46,200, and a four-year life. Machine B costs $898,000, has annual aftertax cash outflows of $16,500, and has a seven-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should the company purchase and how much less is that machine's EAC as compared to the other machine's? A) A; $24,321.02 B) A; $17,404.04 C) B; $16,791.08 D) B; $23,156.82 E) B; $17,521.94

Q: Country Breads uses specialized ovens to bake its bread. One oven costs $249,000 and lasts about 15 years before it needs to be replaced. The annual operating cost per oven is $34,300. What is the equivalent annual cost of an oven if the required rate of return is 14 percent? A) −$74,839.43 B) −$48,349.72 C) −$82,800.19 D) −$50,560.08 E) −$28,729.77

Q: ALUM Inc. uses high-tech equipment to produce specialized products. Each one of its machines costs $1,243,000 to purchase plus an additional $78,000 a year to operate. The machines have a five-year life after which they are worthless. What is the equivalent annual cost of one these machines if the required return is 16.5 percent? A) −$462,061.04 B) −$427,109.10 C) −$335,803.37 D) −$395,666.67 E) −$556,947.08

Q: You are working on a bid to build two apartment buildings a year for the next three years. This project requires the purchase of $847,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. Ignore bonus depreciation. The equipment can be sold at the end of the project for $415,000. You will also need $165,000 in net working capital over the life of the project. The fixed costs will be $528,000 a year and the variable costs will be $1,640,000 per building. Your required rate of return is 16 percent for this project and your tax rate is 24 percent. What is the minimal amount, rounded to the nearest $100, you should bid per building? A) $4,158,400 B) $4,489,500 C) $2,065,700 D) $2,780,600 E) $2,244,800

Q: You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of $249,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the three-year project life. Ignore bonus depreciation. The equipment can be sold at the end of the project for $115,000. You will also need $18,000 in net working capital for the duration of the project. The fixed costs will be $37,000 a year and the variable costs will be $148,000 per park. Your required rate of return is 14 percent and your tax rate is 21 percent. What is the minimal amount you should bid per park? (Round your answer to the nearest $100) A) $212,500 B) $208,400 C) $214,300 D) $214,100 E) $208,200

Q: Gateway Communications is considering a project with an initial fixed asset cost of $2.168 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. Ignore bonus depreciation. At the end of the project the equipment will be sold for an estimated $495,000. The project will not directly produce any sales but will reduce operating costs by $634,000 a year. The tax rate is 21 percent. The project will require $128,000 of net working capital which will be recouped when the project ends. What is the net present value at the required rate of return of 14.3 percent? A) $668,019.24 B) $701,414.14 C) $652,108.10 D) $570,475.57 E) $657,345.35

Q: Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.03 million, have a 12-year life, and lower manufacturing costs by an estimated $280,000 a year. The equipment will be depreciated using straight-line depreciation over its expected life to a book value of zero. Ignore bonus depreciation. The required rate of return is 13 percent and the tax rate is 23 percent. What is the annual operating cash flow? A) $156,947.92 B) $128,150.00 C) $266,441.67 D) $235,341.67 E) $155,616.67

Q: Kwik Dogs is considering the installation of a new cooker that will cut annual operating costs by $11,900. The system will cost $38,900 and will be depreciated to zero using straight-line depreciation over its five-year life. What is the amount of the earnings before interest and taxes for this project? Ignore bonus depreciation. A) $19,680 B) $4,120 C) $5,525 D) $4,120 E) $19,680

Q: A project requires the purchase of $587,000 of equipment that will be depreciated straight-line to a zero book value over the four-year life of the project. The equipment can be scraped at the end of the project for 33 percent of its original cost. Annual sales from this project are estimated at $625,000 with cash expenses of $487,000. Net working capital equal to 12 percent of sales will be required to support the project. The required return is 13 percent and the tax rate is 21 percent. What is the cash flow in Year 2 of the project? Ignore bonus depreciation. A) $91,080 B) −$55,670 C) $139,838 D) $105,560 E) −$5,775

Q: A two-year project has sales of $582,960, cash costs of $411,015, and depreciation expense of $68,109. The tax rate is 24 percent and the discount rate is 12 percent. What amount should be used as the annual depreciation tax shield when computing the project's operating cash flow? Ignore bonus depreciation. A) $23,606.67 B) $16,346.16 C) $47,213.34 D) $26,210.01 E) $46,676.30

Q: Corner Market is considering adding a new product line that is expected to increase annual sales by $418,000 and cash expenses by $337,000. The initial investment will require $390,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the six-year life of the project. Ignore bonus depreciation. The company has a marginal tax rate of 21 percent. What is the annual value of the depreciation tax shield? A) $13,650 B) $13,160 C) $27,300 D) $163,800 E) $136,500

Q: A proposed expansion project is expected to increase sales by $74,300 and increase cash expenses by $46,900. The project will require $52,800 of fixed assets that will be depreciated using straight-line depreciation to a zero book value over the five-year life of the project. The store has a marginal tax rate of 23 percent. What is the operating cash flow of the project using the tax shield approach? Ignore bonus depreciation. A) $11,114.40 B) $17,916.60 C) $23,526.80 D) $22,800.10 E) $14,098.20

Q: A project has projected sales of $76,400, cash expenses of $42,900, depreciation of $3,730, taxes of $7,200, and an initial cash requirement of $2,200 for working capital. What is the amount of the operating cash flow using the top-down approach? A) $22,570 B) $30,030 C) $28,300 D) $26,300 E) $24,570

Q: Houston's is considering a project that will produce incremental annual sales of $361,000 and increase cash expenses by $198,000. If the project is implemented, taxes will increase from $31,000 to $47,000. The company is debt-free. What is the amount of the operating cash flow using the top-down approach? A) $172,000 B) $147,000 C) $122,000 D) $138,000 E) $163,000

Q: Hot and Cold has annual sales of $847,000, annual depreciation of $47,000, and net working capital of $43,000. The tax rate is 21 percent and the profit margin is 7.3 percent. The firm has no interest expense. What is the amount of the operating cash flow? A) $14,831 B) $108,831 C) $121,220 D) $168,480 E) $155,831

Q: Webster's has sales of $798,000 and a profit margin of 6.8 percent. The annual depreciation expense is $82,600. What is the amount of the operating cash flow if the company has no long-term debt? A) $54,264 B) −$28,336 C) $22,160 D) $136,864 E) $104,760

Q: Marie's Fashions is considering a project that will require $39,000 in net working capital and $68,000 in fixed assets. The project is expected to produce annual sales of $78,500 with associated cash costs of $41,000. The project has a four-year life. The company uses straight-line depreciation to a zero book value over the life of the project. Ignore bonus depreciation. The tax rate is 25 percent. What is the operating cash flow for this project? A) $33,325 B) $27,580 C) $32,545 D) $25,760 E) $32,375

Q: Jefferson & Sons is evaluating a project that will increase annual sales by $198,600 and annual cash costs by $94,500. The project will initially require $187,000 in fixed assets that will be depreciated straight-line to a zero book value over the four-year life of the project. No bonus depreciation will be taken. The applicable tax rate is 22 percent. What is the operating cash flow for this project? A) $97,851 B) $89,920 C) $91,483 D) $86,480 E) $46,620

Q: PGH Inc. is considering a new seven-year expansion project with an initial fixed asset investment of $3.87 million. The fixed asset will be depreciated straight-line to zero over its seven-year tax life, after which time it will be worthless. No bonus depreciation will be taken. The project is estimated to generate $2,103,000 in annual sales, with costs of $1,065,000. The tax rate is 21 percent and the required return is 14.6 percent. What is the net present value of this project? A) $32,155.56 B) $71,841.16 C) $134,098.28 D) −$52,171.66 E) $95,008.04

Q: Alt's is contemplating the purchase of a new $218,000 computer-based order entry system. The system will be depreciated straight-line to zero over the system's five-year life. No bonus depreciation will be taken. The system will be worth $20,000 at the end of five years. The company will save $73,500 before taxes per year in order processing costs and will reduce working capital by $18,600 on Day 1. The net working capital will return to its original level when the project ends. The tax rate is 21 percent. What is the internal rate of return for this project? A) 13.37 percent B) 21.49 percent C) 18.21 percent D) 20.12 percent E) 13.58 percent

Q: Dog Up! Franks is looking at a new sausage system with an installed cost of $411,500. This cost will be depreciated straight-line to zero over the project's seven-year life, at the end of which the sausage system is expected to be sold for $35,000 cash. No bonus depreciation will be taken. The sausage system will save the firm $129,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $22,500. All of the net working capital will be recovered at the end of the project. The tax rate is 23 percent and the discount rate is 13.2 percent. What is the net present value of this project? A) $105,391.14 B) $107,820.59 C) $51,507.41 D) $40,441.14 E) $84,117.64

Q: The Market Place is considering a new four-year expansion project that requires an initial fixed asset investment of $1.67 million. The fixed asset will be depreciated straight-line to zero over its four-year tax life, after which time it will have a market value of $435,000. No bonus depreciation will be taken. The project requires an initial investment in net working capital of $198,000, all of which will be recovered at the end of the project. The project is estimated to generate $1,850,000 in annual sales, with costs of $1,038,000. The tax rate is 21 percent and the required return for the project is 16.4 percent. What is the net present value? A) $358,576.22 B) $451,180.73 C) $241,334.55 D) $302,208.15 E) $254,595.45

Q: A project will require $512,000 for fixed assets and $47,000 for net working capital. The fixed assets will be depreciated straight-line to a zero book value over the six-year life of the project. No bonus depreciation will be taken. At the end of the project, the fixed assets will be worthless. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $965,000 and costs of $508,000. The tax rate is 21 percent and the required rate of return is 14.7 percent. What is the amount of the annual operating cash flow? A) $283,633.33 B) $447,826.67 C) $378,950.00 D) $245,300.00 E) $198,300.00

Q: Phone Home, Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of $6.089 million. The fixed asset will be depreciated straight-line to zero over the project's life, after which time it will be worthless. No bonus depreciation will be taken. The project is estimated to generate $4,389,000 in annual sales, with costs of $1,731,200. The tax rate is 24 percent. What is the annual operating cash flow for this project? A) $1,727,570 B) $1,211,407 C) $2,312,200 D) $936,000 E) $2,848,315

Q: Pre-Fab purchased some equipment two years ago for $287,600. These assets are classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576, for Years 1 to 6, respectively. The company is currently replacing this equipment so the old equipment is being sold for $150,000. What is the aftertax salvage value from this sale if the tax rate is 21 percent and no bonus depreciation is claimed? A) $144,433.20 B) $154,183.20 C) $142,311.12 D) $147,490.08 E) $149,000.00

Q: Consider a project with an initial asset cost of $168,000 with depreciation of that asset set as straight-line to zero over seven years. Ignore bonus depreciation. At the end of the project's four-year life the asset can be sold for $65,000. Use a combined federal and state tax rate of 24 percent. What is the aftertax salvage value? A) $62,550 B) $65,500 C) $66,050 D) $68,100 E) $66,680

Q: A project will require $543,000 for fixed assets, $118,000 for inventory, and $142,000 for accounts receivable. Short-term debt is expected to increase by $65,000. The project has a six-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. No bonus depreciation will be taken. The project is expected to generate annual sales of $905,000 with costs of $730,000. What is the project's cash flow at Time 0? A) −$536,000 B) −$738,000 C) −$720,000 D) −$779,000 E) −$944,000

Q: Home Furnishings is expanding its product offerings to reach a wider range of customers. The expansion project includes increasing floor inventory by $486,000 and increasing its debt to suppliers by 90 percent of that amount. The company will also spend $947,000 to expand the size of its showroom. As part of the expansion plan, the company expects accounts receivable to rise by $205,000. For the project analysis, what amount should be used as the initial cash flow for net working capital? A) −$156,400 B) −$176,600 C) −$271,000 D) −$253,600 E) −$391,000

Q: The Card Shoppe needs to maintain 21 percent of its sales in net working capital. Currently, the store is considering a four-year project that will increase sales from its current level of $349,000 to $408,000 the first year and to $414,000 a year for the following three years of the project. What amount should be included in the project analysis for net working capital in Year 4 of the project? A) −$1,260 B) $86,940 C) $0 D) $21,720 E) $13,650

Q: You own some equipment that you purchased four years ago at a cost of $287,000. The equipment is five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for Years 1 to 6, respectively. You are considering selling the equipment today for $105,000. Which one of the following statements is correct if your tax rate is 24 percent and you claim no bonus depreciation? A) The tax due on the sale is $13,357.76. B) The book value today is $49,406.40. C) The accumulated depreciation to date is $270,468.80. D) The taxable amount on the sale is $54,593.60. E) The aftertax salvage value is $91,702.46

Q: Pet Supply purchased $62,800 of fixed assets two years ago. The company no longer needs these assets so it is going to sell them today for $29,500. The assets are classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for Years 1 to 6, respectively. What is the net cash flow from this sale if the firm's tax rate is 23 percent and no bonus depreciation is taken? A) $25,516.60 B) $18,576.00 C) $29,281.04 D) $29,648.12 E) $25,211.09

Q: Overland purchased $387,950 of fixed assets that are classified as three-year property for MACRS. The MACRS rates are .3333, .4445, .1481, and .0741 for Years 1 to 4, respectively. What is the amount of the depreciation expense in Year 3 assuming no bonus depreciation is taken? A) $28,747.10 B) $42,399.29 C) $57,455.40 D) $59,929.11 E) $12,766.59

Q: You just purchased $218,000 of equipment that is classified as five-year MACRS property. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. What will be the book value of this equipment at the end of three years assuming no bonus depreciation is taken? A) $58,467 B) $62,784 C) $159,533 D) $67,670 E) $155,216

Q: Better Beverages purchased $139,700 of fixed assets that are classified as five-year MACRS property. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. What will the accumulated depreciation be at the end of Year 4 if the tax rate is 21 percent and no bonus depreciation is taken? A) $76,269.49 B) $16,093.44 C) $24,140.16 D) $48,755.09 E) $115,559.84

Q: Russell's is considering purchasing $697,400 of equipment for a four-year project. The equipment falls in the five-year MACRS class with annual percentages of .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. At the end of the project the equipment can be sold for an estimated $135,000. The required return is 13.2 percent and the tax rate is 23 percent. What is the amount of the aftertax salvage value of the equipment assuming no bonus depreciation is taken? A) $140,071.25 B) $131,667.47 C) $118,804.30 D) $138,666.67 E) $143,001.29

Q: Eglon Mills has a new Year 2020 project with an initial equipment cost of $368,000 and a project life of 10 years. The firm generally uses straight-line depreciation to a zero book value over the project's life. If the firm opts instead to use the bonus depreciation method, what is the depreciation tax shield amount for Year 2020 at a tax rate of 21 percent? A) $77,280 B) $38,640 C) $7,280 D) $3,864 E) $15,456

Q: Keyser Mining is considering a project that will require the purchase of $479,000 of equipment. The equipment will be depreciated straight-line to a zero book value over the five-year life of the project after which it will be worthless. The required return is 12 percent and the tax rate is 30 percent. What is the value of the depreciation tax shield in Year 4 of the project assuming no bonus depreciation is taken? A) $28,740 B) $32,200 C) $78,600 D) $138,400 E) $143,700

Q: Hunter's Hut is considering a project that will require additional inventory of $48,000 and will increase accounts payable by $22,000. Accounts receivable is currently $297,000 and is expected to increase by four percent if this project is accepted. What is the project's initial cash flow for net working capital? A) −$37,880 B) −$81,880 C) −$42,250 D) −$66,550 E) −$27,550

Q: A proposed three-year project will require $589,000 for fixed assets, $79,000 for inventory, and $43,000 for accounts receivable. Accounts payable are expected to increase by $47,000. The fixed assets will be depreciated straight-line to a zero book value over five years. No bonus depreciation will be taken. At the end of the project, the fixed assets can be sold for $225,000. The net working capital returns to its original level at the end of the project. The operating cash flow per year is $67,900. The tax rate is 21 percent and the discount rate is 12 percent. What is the total cash flow in the final year of the project? A) $364,190 B) $361,000 C) $370,126 D) $378,970 E) $369,770

Q: Ausel's is considering a five-year project that will require $738,000 for new fixed assets that will be depreciated straight-line to a zero book value over five years. No bonus depreciation will be taken. At the end of the project, the fixed assets can be sold for 18 percent of their original cost. The project is expected to generate annual sales of $679,000 with costs of $321,000. The tax rate is 22 percent and the required rate of return is 15.2 percent. What is the amount of the aftertax salvage value? A) $105,165.60 B) $103,615.20 C) $104,409.20 D) $132,840.00 E) $118,406.90

Q: A new molding machine is expected to produce operating cash flows of $109,000 a year for 4 years. At the beginning of the project, inventory will decrease by $8,700, accounts receivables will increase by $9,500, and accounts payable will decrease by $5,200. All net working capital will be recovered at the end of the project. The initial cost of the molding machine is $319,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. No bonus depreciation will be taken. The equipment will be salvaged at the end of the project creating an aftertax cash inflow of $51,600. What is the net present value of this project given a required return of 14.2 percent? A) $25,162.45 B) $24,061.87 C) $28,336.01 D) $22,863.16 E) $27,925.54