1) Which of the following best defines incremental earnings? A) cash flows arising from a particular investment decision investment B) the amount by which a firm's earnings are expected to change as a result of an C) the earnings arising from all projects that a company plans to undertake in a fixed time span D) the net present value (NPV) of earnings that a firm is expected to receive as the result of an investment decision 2) Which of the following is NOT a factor that a manager should bear in mind when estimating a project's revenues and costs? A) Sales of a product will typically accelerate, stabilize, and then decline as the product becomes outdated or faces increased competition. B) A new product typically has its highest sales immediately after release as customers are attracted by the novelty of the product. C) The prices of technology products tend to fall over time as newer, superior technologies emerge and production costs decline. D) Prices and costs tend to rise with the general level of inflation in the economy. 3) CathFoods will release a new range of candies which contain anti-oxidants. New equipment to manufacture the candy will cost $4 million, which will be depreciated by straight-line depreciation over six years. In addition, there will be s5 milion spent on promoting the new candy line. It is expected that the range of candies will bring in revenues of S6 million per year for five years with production and support costs of $1.5 million per year. If CathFoods' marginal tax rate is 35%, what are the incremental earnings in the second year of this project? A) $2.49 million B) $2.100 million C) $3.833 million D) $1.342 million 4) Which of the following would you NOT consider when making a capital budgeting decision? A) the additional taxes a firm would have to pay in the next year B) the cost of a marketing study completed last year C) the opportunity to lease out a warehouse instead of using it to house a new production line D) the change in direct labor expense due to the purchase of a new machine 5) CathFoods will release a new range of candies which contain antioxidants. New equipment to manufacture the candy will cost S2 million, which will be depreciated by straight-line over four years. It is expected that the range of candies will bring in revenues of $4 million per year for four years with pro CathFoods marginal tax rate is 35%, what are the incremental free cash flows in the second year duction and support costs of $1.5 million per year. If of this project? A) $1.800 million B) $1.400 million C) $2.000 million D) S0.700 million 6) The Sisyphean Company is considering a new project that will have an annual depreciation expense of $3.6 million. If Sisyphean's marginal corporate tax rate is 35% corporate tax rate is 30%, then what is the value of the depreciation tax shield on new project? A) $ 1,080,000 B) S1.260,000 C) $1,890,000 D) $1,134,000 and its average the company's 7) Year 0 Year 1 Year 2 Year 3 MACRS Depreciation Rate 33.33% 44.45% 14.81% 7.41% A machine is purchased for $575.000 and is used through the end of Year 2The machine will be depreciated using the 3-Year MACRS schedule. At the end of Year 2, the machine is sold for $75,000. What is the after-tax cash flow from the sale of the machine at the end of Year 2 if the firm's marginal tax rate is 35%? A) $42.608 B) $15,916 C) S32,392 D) $63,663 8) A maker of computer games expects to sell 475,000 games at a price of $48 per game. These units cost $10 to produce. Selling, general, and administrative expenses are $1.0 million and depreciation is $280,000. What is the EBIT break-even point for the number of games sold in this case? A) $26,667 B) $26,316 C) $100,000 D) $33,684