1. If an asset is sold for less than its purchase price but more than its depreciation book value:

   Answer

   	A.	the asset sale creates no taxable event
   	B.	there is a tax computed using the ordinary income rate
   	C.	there is a taxable event with a capital loss created
   	D.	there is a loss to report for tax purposes

0.66667 points

Question 5

1. A problem associated with the payback method is:

   Answer

   	A.	it uses the time value of money concept
   	B.	it doesn't consider cash flows after the payback period
   	C.	it assumes that all cash flows are invested at the cost of capital
   	D.	it usually requires less time to compute than that required by the net present value method

0.66667 points

Question 7

1. The project selection method most consistent with the goal of firm value maximization is:

   Answer

   	A.	IRR
   	B.	payback method
   	C.	both IRR and NPV
   	D.	NPV

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Question 8

1. You have purchased a machine for $120,000 and are depreciating it using a three-year MACRS schedule. You are in a 30% tax bracket and will be able to sell the machine for $50,000 at the end of year four. Calculate your cash flow from the sale of this machine.

   Answer

   	A.	$35,000
   	B.	$30,000
   	C.	$12,336
   	D.	$28,784

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Question 11

1. The relationship between NPV of a project and the required rate of return is:

   Answer

   	A.	random
   	B.	negative
   	C.	positive
   	D.	determined by the relationship of NPV to IRR

0.66667 points

Question 12

1. The payback period is best defined as:

   Answer

   	A.	the time period required for total revenue received to equal the initial investment
   	B.	the time period required for the NPV to equal zero
   	C.	the time it takes to receive cash flows sufficient to cover your initial investment
   	D.	the time period required for the present value of all cash flows to equal the initial investment

0.66667 points

Question 13

1. When the used asset is eventually sold for less than its depreciated book value:

   Answer

   	A.	then the difference is taxed as ordinary income
   	B.	there is a capital gain tax
   	C.	there are no tax effects
   	D.	The firm's tax liability is reduced by the amount of the difference times the ordinary income tax rate

0.66667 points

Question 14

1. Calculate the IRR for the following investment project: Initial investment is $75,000; inflows are $20,000 for the next five years; Range of IRR is between 9%-14%. (Round your answer to the nearest whole percentage)

   Answer

   	A.	9%
   	B.	10%
   	C.	14%
   	D.	12%

0.66667 points

Question 15

1. If a new machine requires an increase in current assets from $50,000 to $60,000 and current liabilities from $30,000 to $50,000, the dollar change in net working capital is:

   Answer

   	A.	undefined
   	B.	zero
   	C.	negative
   	D.	positive

0.66667 points

Question 16

1. In cases of conflict among mutually exclusive projects, the one with highest:

   Answer

   	A.	cost of capital should be chosen
   	B.	with mutually exclusive projects, NPV = IRR so the highest of either is appropriate
   	C.	NPV should be chosen
   	D.	IRR should be chosen

0.66667 points

Question 17

1. What is the relevant initial cash outflow of the following project for capital budgeting analysis purposes?

   Equipment cost	$100,000
   Installation	20,000
   Delivery	3,000
   Consultant fees for regulation impact study	15,000

   Change in operating expenses 5,000/year

   Answer

   	A.	$123,000
   	B.	$120,000
   	C.	$138,000
   	D.	$128,000

0.66667 points

Question 18

1. An externality can best be described as:

   Answer

   	A.	something that should not be considered in the capital budgeting process.
   	B.	something that always represents a negative impact
   	C.	an impact, positive or negative, that a new project would have on existing projects
   	D.	an example of opportunity costs

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Question 19

1. What is the relevant initial cash outflow for the following project?

   Equipment cost	$50,000
   Installation	$ 5,000
   Cash increase needed	$ 2,000
   Inventory increase needed	$ 3,000
   Accounts payable increase	$ 2,000

   Answer

   	A.	$60,000
   	B.	$55,000
   	C.	$62,000
   	D.	$58,000

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Question 20

1. Independent projects:

   Answer

   	A.	can be mutually exclusive under certain conditions
   	B.	always have negative NPVs
   	C.	do not compete with each other
   	D.	do compete with each other

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Question 21

1. Which of the following situations would not be considered as an incremental cash flow for a proposed new machine?

   Answer

   	A.	externalities created by the project
   	B.	tax changes
   	C.	changes in overhead
   	D.	prepaid rent expense

0.66667 points

Question 22

1. In capital budgeting financing costs associated with incremental cash flows:

   Answer

   	A.	are not included in the cash flow figures because they are not relevant cash flows
   	B.	need to be included in the cash flows that are discounted because they will not occur if the project is rejected.
   	C.	lead to distortions in the capital budgeting decision
   	D.	are factored into the discount rate

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Question 23

1. Depreciation associated with a project will:

   Answer

   	A.	cause incremental cash flows to increase
   	B.	only affect the fixed asset account as depreciation is a sunk cost
   	C.	have no effect on incremental cash flows
   	D.	cause incremental operating cash flows to decrease

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Question 24

1. Given the following information, calculate the net present value: Initial outlay is $50,000; required rate of return is 10%; current prime rate is 12%; and cash inflows at the end of the next 4 years are $60,000, $30,000, $40,000, and $50,000.

   Answer

   	A.	less than 0
   	B.	equal to 0
   	C.	$87,734
   	D.	$93,542

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Question 25

1. For a higher than average risk project, the analyst:

   Answer

   	A.	adjusts the discount rate upward in the IRR calculation
   	B.	uses a risk-free rate of interest as the required rate of return
   	C.	always rejects the project
   	D.	adjusts the discount rate upward in the NPV calculation

0.66667 points

Question 26

1. The relevant cash flows in capital budgeting can best be described as:

   Answer

   	A.	externality cash flows
   	B.	incremental cash flows
   	C.	incremental after-tax net income
   	D.	changes in fixed asset cash flows

0.66667 points

Question 27

1. Given the following information, calculate NPV: Initial investment is $50,000; inflows at the end of the next four years are $12,000, $4,000, $12,000, $13,000; required rate of return is 8%.

   Answer

   	A.	$83,622
   	B.	-$12,442
   	C.	-$16,378
   	D.	-$10,427

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Question 28

1. NPV represents:

   Answer

   	A.	the percentage change represented by the project
   	B.	the dollar change in firm value resulting from undertaking a project
   	C.	the dollar profits added to the firm discounting at the cost of capital
   	D.	the percentage return of the project

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Question 29

1. You have purchased equipment costing $100,000 and will depreciate it according to the schedule for a MACRS five-year asset. You have a 40% tax rate and sell the equipment for $25,000 at the end of six years. Calculate your taxes.

   Answer

   	A.	$15,000
   	B.	$ 6,920
   	C.	$ 3,080
   	D.	$10,000

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Question 30

1. Calculate the payback period for the following investment: A machine costs $100,000 with installation costs of $15,000. Cash inflows are expected to be 26,000 per year for the next seven years.

   Answer

   	A.	5 years
   	B.	3.85 years
   	C.	greater than 6 years
   	D.	4.42 years