1. Which of the following is NOT essential forsorting good and bad projects?

• incorporating the required rate of return of the project
• considering time value of money
• including all cash flows of the project
• All of the above are essential criteria.
• None of the above are essential criteria.

2.A firm is considering replacing a fully depreciated old plant with a new plant on vacant land the firm already owns.Which of the following should be included in the firm's cash flow projections?

• a. the original cost of the vacant land
• b. the price of the vacant land in the current market
• c. the salvage value of the old plant
• d. the depreciation of the new plant
• e. only b, c, and d

3.Sony is thinking of selling an old machine and buying a new, higher capacity machine. It purchased the old machine for $1,000,000 three years ago and depreciated it using the simplified straight-line depreciation method. The life of the machine was estimated to befiveyears. If Sony can sell the machine for $200,000 today, what is the tax implication from the sale of this old asset? Assume that the tax rate is 40%.

• tax liability of $160,000
• tax liability of $80,000
• tax shield of $80,000
• tax shield of $160,000
• no tax effects

4.A firm has a machine it can sell for $40,000. The book value of the machine is currently $20,000. If the firm sells the machine, what are the net proceeds from the sale? Assume that the tax rate is 40%.

• $40,000
• $24,000
• $32,000
• $28,000
• $12,000

5.ABC Company is considering whether it is worth investing in a project requiring the purchase of new equipment. The firm spent $20,000 three months ago to conduct a market study. The cost of a new machine is $160,000, and the firm has to spend an additional $10,000 to get it shipped and installed. This project will increase annual revenues by $225,000 and annual costs by $45,000. If the firm undertakes this project, $50,000 in net working capital investment is required. What is the initial outlay of this project?

• $180,000
• $170,000
• $60,000
• $220,000
• $240,000

6.The cost of a new machine is $220,000. The cost of shipping is $10,000, and the cost of installation is $20,000.The required working capital is $25,000. Using the 3-year MACRS schedule below, determine the depreciation expense in year 3.

1. Year3-YR MACRS 1 33.33% 2 44.45% 3 14.81% 4 7.41%

• $37,025
• $36,285
• $35,544
• $32,582
• $40,728

7.Louie's Leisure Products is considering a project thatwill require the purchase of $1.3 million in new equipment. Shipping and installation will costan additional $100,000. For tax purposes, the equipment will be depreciated straight-line to a salvage value of $175,000 over the seven-year life of the project. The expected sales from this project are$1.2 million peryear. Net working capital equal to 20%of sales will be required to support the project. What is the depreciation expense of this project in year 4?

• $200,000
• $175,000
• $209,286
• $25,000
• $234,286

8.You are a project manager. You are estimating cash flows of a potential project that requires an investment of $250,000 in a machine, including installation cost, and $40,000 in working capital, which will be fully captured at the end of the project. The machine has an estimated life of fiveyears and will be depreciated via thesimplified straight-line method. The project is expected to raise the firm's revenues by $330,000 and costs by $125,000 annually. Since the trend of the product moves rapidly, you expect to terminate this project in threeyears. In threeyears, the machine you purchase for the project can be sold for $50,000. The firm has a marginal tax rate of 34%. What is the annual cash flow in the second year?

• $163,633
• $155,020
• $148,900
• $152,300
• $102,300

9.You are a project manager. You are estimating cash flows of a potential project that requires an investment of $250,000 in a machine, including installation cost, and $40,000 in working capital, which will be fully captured at the end of the project. The machine has an estimated life of fiveyears and will be depreciated via thesimplified straight-line method. The project is expected to raise the firm's annual revenues by $330,000 and annual costs by $125,000. Since the trend of the product moves rapidly, you expect to terminate this project in threeyears. In threeyears, the machine you purchase for the project can be sold for $50,000. The firm has a marginal tax rate of 34%. What is the terminal value of the project?

• $67,000
• $123,000
• $56,000
• $73,000
• $107,000

10.You are evaluating a capital project with a net investment of $800,000, which includes an increase in net working capital of $8,000. The project has a life of 20 years with an expected salvage value of $100,000. The project will be depreciated via simplified straight-line depreciation. Revenues are expected to increase by $120,000 per year and operating expenses by $14,000 per year. The firm's marginal tax rate is 40%,and the cost of capital for this project is 12%. What is the net present value of this project?

• $245,302
• -$199,578
• $248,254
• $228,290
• $229,168