8 MC QUESTIONS-BUSINESS FINANCE

Q: Some financial managers prefer not to apply the half-rate rule to the CCA effects from a salvage value because:

• The half rate-rule only applies to assets in class 10.
• the half-rate rule only applies in the year of acquisition.
• the half-rate rule is no longer valid in tax law.
• the half-rate rule does not apply to salvage if an asset is sold by itself.

Q: In most capital budgeting decisions, the emphasis is on:

• earnings after taxes
• earnings before taxes
• cash flows
• Accounting flows

Q: The first step in the capital budgeting process is:

• assignment of probabilities.
• idea development.
• collection of data.
• decision making.

Q: Capital cost allowance

• is determined by the firm and will have no effect on cash flow.
• reduces taxes payable and affects a project's cash flow.
• is determined by tax law and will increase taxes payable always reducing a projects cash flow.
• creates a tax loss carryforward that has no effect on a project decision.

Q: One of the major difference between accounting profits and the timing of cash flows relates to:

• CCA.
• explicit costs.
• revenue.
• amortization.

Q: Capital projects that may have positive values may not be accepted because all of the following except:

• the scope of the projects is beyond management's capabilities.
• the positive NPV.
• capital rationing.
• capital market failures.

Q: Which of the following statements is incorrect?

• If the internal rate of return is < cost of capital, the proposal should be rejected.
• If the NPV > 0, the proposal is acceptable.
• The payback method is deficient because of its failure to incorporate the time value of money.
• The NPV and IRR methods always agree when evaluating mutually exclusive projects.

Q: When an asset's undepreciated capital cost allowance (UCC) is higher than the market value:

• taxes are applicable to both the capital gain and the difference between UCC and the market value.
• taxes are applicable to the capital gain, but the difference between UCC and the market value represents tax saving.
• there is no capital gain and the difference between UCC and the market value represents tax savings.
• there is no capital gain. Taxes are applicable to the difference between UCC and the market value.