8. The opportunity to modify a project in the future is referred to as:

A: a managerial option. B: scenario planning. C: an erosion control measure. D: sensitivity analysis. E: a restructuring.

15. A U.S. depreciation system that allows for more rapid depreciation under various classifications is called the __?

17. A U.S. depreciation system that allows for more rapid depreciation under various classifications is called the rapid recovery period.

T/F

21. The tax shield approach, given a tax-paying firm:

A: ignores both interest expense and taxes B: separates cash inflows from cash outflows C: considers the changes in net working capital resulting from a new project D: is based on the fact that depreciation does not affect the operating cash flows E: recognizes that depreciation creates a cash inflow

28. A project has an operating cash flow of $33,000. Initially, this 4-year project required $5,600 in net working capital, which is recoverable when the project ends. The firm also spent $16,400 on equipment to start the project. This equipment will have a book value of $2,800 at the end of year 4. What is the cash flow for year 4 of the project if the equipment can be sold for $4,500 and the tax rate is 35 percent?

A: $42,505 B: $36,905 C: $38,600 D: $43,100 E: $37,500

29. A firm has net income of $60,400, depreciation of $23,100, and taxes of $20,400. What is the firm's operating cash flow?

12. Brook's is a specialty retailer of souvenir wear. Currently, the firm offer T-shirts, sweatshirts, and caps. Its most recent annual sales consisted of $24,800 of T-shirts, $9,800 of sweatshirts, and $3,500 of caps. The company is adding polo shirts to the line-up and projects that this addition will result in sales next year of $17,200 of T-shirts, $13,600 of sweatshirts, $13,500 of polo shirts, and $3,200 of caps. What amount of next year's revenue is from side effects of the additional product?

13. Fun Land is considering adding a miniature golf course to its facility. The course would cost $47,000, would be depreciated on a straight line basis over its 3-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $34,000 a year with $8,000 of that amount being variable cost. The fixed cost would be $7,000. In addition, the firm anticipates an additional $12,000 in revenue from its existing facilities if the course is added. The project will require $5,000 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 12.9 percent and a tax rate of 34.5 percent?

26. You are analyzing a project and have developed the following estimates. The depreciation is $26,000 a year and the tax rate is 35 percent. What is the worst case operating cash flow? base case lower bound upper bound

unit sales 2100 1700 2400

price per unit 260 235 280

variable cost per unit 190 160 215

fixed costs 45000 40500 49500

27. You are analyzing a project and have developed the following estimates. The depreciation is $72,000 a year and the tax rate is 35 percent. What is the best case operating cash flow?

base case lower bound upper bound

Unit sales 2700 2400 2900

price per unit 210 190 220

variable cost per unit 140 130 160

fixed costs 270000 25500 28500

31. You are analyzing a project and have developed the following estimates. The depreciation is $3,600 a year and the tax rate is 35.2 percent. What is the worst case operating cash flow?

	Base	Lower Bound	Upper Bound
Unit Sales	2,554	2,226	2,783
Price Per Unit	$33	$26	$39
Variable Cost Per Unit	$25	$19	$28
Fixed Costs	$9,300	$7,500	$10,800