1. Zellars, Inc. Is considering two mutually exclusive projects, A and B. Project A costs $ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.s required rate of return for these projects is 10%. The profitability index for Project A is ________ (Points : 1) 1.47 1.22 1.13 1.08 2. Blue Jay Industries is considering the purchase of a new machine. It will replace an existing but obsolete machine that will be sold for $40,000. The existing machine is 8 years old, cost $150,000, had a 10 year useful life, and is being depreciated to zero using the straight line method. Blue Jays income tax rate is 40 %. What is the after tax salvage value of the old machine? (Points : 1) $6,000 $ 24,000 $36,000 $40,000 3. The capital budgeting manager for XYZ Corporation, a very profitable high technology company, completed her analysis of Project A assuming 5 year depreciation. He accountant reviews the analysis and change the depreciation method to 3 year depreciation. This change will, ________ (Points : 1) Increase the present value of the net cash flow Decrease the present value of the net cash flow Have no effect on the net cash flow because depreciation is a non cash expense Only change the net cash flows if the useful life of the depreciable asset is greater than five years. 4. A corporate bond has a face value of $1,000 and a coupon rate of 6.5%. The bond matures in 10 years and has a current market price of $985. If the corporation sells more bonds it will incur flotation costs of $36 per bond. If the corporate tax rate is 34 %, what is the after tax cost of debt capital? (Points : 1) 5.71% 5.45% 5.18% 4.78% 5. A new machine can be purchased for $1,000,000. It will cost $65,000 to ship and $35,000 to modify the machine. A $30,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for $150,000. The firm will borrow $750,000 to finance the acquisition. Total interest expense for 5 years is expected to approximate $250,000. What is the investment cost of the machine for capital budgeting purposes? (Points : 1) $1,100,000 $1,250,000 $1,280,000 $1,530,000 $ 2,030,000 6. A U. S. Company can borrow 10,000 pound in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. Company can borrow an equivalent amount of U.S. Dollars in the United States and pay 13% interest. Assuming the capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero. (Points : 1) 7% 6.6% 6.2% 5.4% 7. Your company is considering a replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold today for $5,000. The new van has an invoice price of $75,000, and it will cost $5,000 to modify the van to carry the companys products. Cost savings from use of the new van are expected to be $ 22,000 per year for 5 years. At which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The companys statutory rate is 35%. Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the initial outlay required to fund this replacement project ? (Points : 1) $81,500 $78,500 $74,500 $71,000 8. Nargo Inc. Wants to replace a 7 year old machine with a new machine that is more efficient. The old machine cost $50,000 when new and has a current book value of $10,000. Margo can sell the machine to a foreign buyer for $12,000. Margos tax rate is 30%. The effect of the sale of the old machine on the initial outlay for the new machine is ________ (Points : 1) [$12,600] [$11,400] [$8,400] $0 9. A capital budgeting project has a net present value of $10,000 and a modified internal rate of return of 13%. The project's required rate of return is 11 %. The internal rate of return is ______ (Points : 1) Greater than 13 % Less than 11 % Between 11% and 13% Less than $10,000 10. Zellars, Inc. Is considering two mutually exclusive projects, A and B. Project A costs $ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.s required rate of return for these projects is 10%. The internal rate of return for Project B is ________ (Points : 1) 26.74% 20.79% 18.64% 16.77%