Q1.

A project costs $500 and has cash flows of $100 for the first three years and $75 in each of the project's last five years. What is the payback period of the project?

Select one:

a. The project never pays back

b. 4.75 years

c. 5.67 years

d. 5.00 years

e. 5.33 years

Q2.

Bob's Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of .84. Gerold's Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of .96. Both companies have similar operations. Bob's Toys:

Select one:

a. is using its fixed assets less efficiently than Gerold's Toys.

b. has $.84 in total assets for every $.96 Gerold's has in total assets.

c. is using its total assets more efficiently than Gerold's Toys.

d. is generating $0.84 in sales for every $1 in total assets.

e. is generating $1.20 in net income for every $1 in net fixed assets.

Q3.

ABC Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 5%. The firm's tax rate is 40%. The CCA rate is 20% (Class 8).What is the present value of the depreciation tax shield?

Select one:

a. $336,959

b. $351,193

c. $343,885

d. $318,767

e. 301,242

Q4.

Your company is considering the purchase of a fleet of cars for $195,000. It can borrow at 10%. The cars will be used for four years. At the end of four years they will be worthless. You call a leasing agent and find that the cars can be leased for $55,000 per year. The corporate tax rate is 34% and the cars belong in CCA class 10 (a 30% class), what is the net advantage to leasing?

Select one:

a. $10,075

b. $21,802

c. $7,771

d. $6,594

e. $5,399

Q5.

Ann is interested in purchasing a factory. Since Ann is a poor negotiator, she hires Mary to negotiate the purchase price. Identify the parties to this transaction.

Select one:

a. Mary and Ann are both agents.

b. Ann is the principal and Mary is the agent.

c. Ann is the agent.

d. Mary is the principal.

e. Mary is the principal and Ann is the agent.