1.The management of Boston Ltd are considering undertaking a project. As a result, they must determine the present value of $1,000 in 3 years at a discount rate of 10%:

A.$1,331

B.$987

C.$826

D.$751

E.None of the above

2.The management of London Ltd are considering undertaking a project. As a result, they must determine the present value of an annuity of $1,000 over 4 years at a discount rate of 10% is:

A.$4,000

B.$3,169

C.$2,486

D.$1,234

E.None of the above

3.The management of Munich Ltd are considering undertaking a project. As a result, they must determine the present value of $1,000 in 2 years at a discount rate of 20% is:

A.$1,440

B.$1,000

C.$833

D.$694

E.None of the above

4.The management of Canada Ltd are considering undertaking a project. As a result, they must determine the present value of an annuity of $1,000 over 3 years at a discount rate of 20% is:

A.$1,527

B.$2,106

C.$2,588

D.$897

E.None of the above

5.The management of Paris Ltd are considering undertaking a project. As a result, they must determine the present value of an annuity of $1,000 over 4 years at a discount rate of 20% is:

A.$4,000

B.$3,200

C.$2,589

D.$2,106

E.None of the above

6.The management of Austin Ltd are considering undertaking a project. As a result, they must determine the present value of $10,000 to be received each year for 10 years and earning an 8% return would be:

A.$65,600

B.$67,100

C.$80,800

D.$88,000

E.None of the above

The following information relates to BIke Ltd the next three questions.

A project that the management of BIke Ltd is considering requires an investment of $40,000. Annual cash inflows of $25,000 are expected to occur for the next five years.

7.If the annual cash inflows occur throughout the year, payback for the project would be:

A.0.6 year

B.1.6 years

C.2.0 years

D.5.0 years

E.None of the above

8.Using the initial capital investment, the accounting rate of return for the BIke Ltd project would be:

A.82.5 per cent

B.62.5 per cent

C.42.5 per cent

D.29.2 per cent

E.None of the above

9.If the cash inflows occur at the end of each year, the net present value of the BIke Ltd project using a 16% discount rate would be:

A.$40,125

B.$41,850

C.$16,160

D.$15,658

E.None of the above

The following information relates to the next three questions.

Investment$35,000

Annual revenues$24,000

Annual cost operating costs$13,000

Salvage value$3,000

Required rate of return12%

Expected life of project4 years

10.The present value of the salvage value would be:

A.$477

B.$750

C.$1,111

D.$1,908

E.None of the above

11.The present value of the annual net cash inflows from operations would be:

A.$33,407

B.$37,912

C.$48,608

D.None of the above

12.The net present value of the project would be:

A.$315

B.$3,662

C.$14,719

D.None of the above

The following information relates to ABC Ltd for the next four questions.

ABC Ltd is considering the purchase of production equipment that costs $300,000. The equipment is expected to generate annual cash inflows of $100,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's discount rate is 14%.

13.Payback for the project is:

A.2.38 years

B.3.0 years

C.3.5 years

D.5.0 years

E.None of the above

14.If depreciation is $60,000 per year, the accounting rate of return based on the average investment is:

A.7.5 per cent

B.13.4 per cent

C.22.4 per cent

D.26.7 per cent

E.None of the above

15.The net present value of the project is:

A.($43,300)

B.$43,300

C.($36,000)

D.$36,000

E.None of the above

The following information relates to Broken Hill Ltd for the following nine questions.

Broken Hill Ltd has been offered a special machine at a cost of $300,000. It has a life of three years and an estimated terminal salvage value of $20,000. Savings in cash operating costs are expected to be $130,000 per year. The company uses straight line depreciation. Assume a tax rate of 30% and the company's desired rate of return is 10%.

16.Ignoring tax, what is the NPV of the Broken Hill Ltd project?

A.$28,284

B.$38,330

C.$23,310

D.None of the above

Assume tax is payable in all remaining questions.

17.What is the tax payable in Year 1 for the Broken Hill Ltd project?

A.$9,000

B.$39,000

C.$60,000

D.None of the above

18.What is the tax payable in Year 3 for the Broken Hill Ltd project?

A.$9,000

B.$15,000

C.$45,000

D.None of the above

19.What is the incremental after-tax implications on NPV for the Broken Hill Ltd project if labour savings of $40,000 occur in Year 1 as a result of purchasing the machine.

A.$40,000

B.$28,000

C.$36,360

D.$25,452

E.None of the above

20.Assume additional working capital of $8,000 will be needed for the Broken Hill Ltd project to cover additional inventory costs. This amount will be fully recoverable at the end of the machine's useful life. What is the impact on NPV

A.$0

B.$1,992

C.$(1,992)

D.None of the above

21.What is the dollar impact on NPV if the Broken Hill Ltd project has an existing machine which is fully depreciated but can be sold for $10,000?

A.$3,000

B.$7,000

C.$10,000

D.None of the above

22.What is the dollar impact on NPV if because of the high-quality output, the sales price can be increased, resulting in an extra $20,000 per annum in pre-tax sales revenue for the Broken Hill Ltd project?

A.$34,818

B.$49,740

C.$72,147

D.None of the above

23.What is the dollar impact on NPV if the new machine will take up additional space? As a result, Broken Hill Ltd will no longer receive rent of $5,000 per year for space it presently sub-leases to Hillend Ltd.

A.$(8,705)

B.$(12,435)

C.$(3,730)

D.None of the above

24.London Ltd anticipates a depreciation deduction of $30,000 in year 3 of a project. London Ltd's tax rate is 30% and its discount rate is 12%. The present value of the depreciation tax shield resulting from this deduction is closest to:

A.$21,000

B.$14,947

C.$6,406

D.$9,000

E.None of the above

25.Munich Ltd anticipates a depreciation deduction of $70,000 in year 2 of a project. Munich Ltd 's tax rate is 30 per cent and its discount rate is 14 per cent. The present value of the depreciation tax shield resulting from this deduction is closest to:

A.$16,159

B.$49,000

C.$21,000

D.$37,704

E.None of the above

26.CanadaLtd needs an increase in working capital of $20,000 in project that will last 4 years. CanadaLtd's tax rate is 30 per cent and its discount rate is 10 per cent. The present value of the release of the working capital at the end of the project is closest to:

A.$6,000.

B.$13,660.

C.$9,562.

D.$14,000.

E.None of the above

27.ParisLtd needs an increase in working capital of $50,000 in project that will last 4 years. ParisLtd's tax rate is 30 per cent and its discount rate is 8 per cent. The present value of the release of the working capital at the end of the project is closest to:

A.$36,751

B.$15,000

C.$25,726

D.$35,000

E.None of the above

28.Austin Ltd has a truck purchased seven years ago at a cost of $6,000. At the time of purchase, the ultimate salvage value was estimated at $500, but salvage value was ignored in depreciation deductions. The truck is now fully depreciated. Assuming a tax rate of 40 per cent, if the truck is sold for $500, the after-tax cash inflow for capital budgeting purposes will be:

A.$500

B.$300

C.$200

D.$100

E.None of the above

29.New YorkLtd operates a machine that costs $20,000 now, has an expected life of eight years, and will require a $7,000 overhaul at the end of the third year. If the tax rate is 40 per cent, then the after-tax cost of this overhaul would be:

A.$12,000

B.$4,200

C.$8,000

D.$2,800

E.None of the above

30.ABCLtd operates equipment that costs $80,000 has a useful life of 10 years. Also suppose that depreciation on the machine is $8,000 for tax purposes in year 4. The tax rate is 40 per cent. The tax savings from the depreciation tax shield in year 4 would be:

A. $4,800 inflow

B.$3,200 inflow

C.$4,800 outflow

D.$3,200 outflow

E. None of the above