1. Which one of the following is an example of mutual exclusive projects?

I. A piece of land may be either used for the extension of the existing plant or the building of a more efficient headquarters for the company

II. Expanding the plant or relocating the companys head office to a new location

a) I only

b) II only

c) Both I and II

d) Neither I nor II

2. Investment in net working capital is included in the cash flows:

a) to reflect the cash flows from buying and selling on credit

b) to reflect the financing decisions

c) to reflect opportunity costs

d) all of the above

3. Given the following information on a project: initial capital cost = $500,000; installation costs associated with the capital asset = $25,000; R&D costs associated with the project = $50,000; associated opportunity costs = $80,000; increase in raw materials inventory = $10,000, which of these amounts is included with working capital?

a) $500,000

b) $80,000

c) $10,000

d) $25,000

4. Ontario Courier Service is considering investing in a capital asset that costs $64,000. The project also requires an investment in net working capital of $8,000. The project will generate annual after-tax operating income of $20,800 for the next four years. The asset has a CCA rate of 20 percent and is expected to sell for $7,200 at the end of four years. The firms cost of capital is 15 percent and marginal tax rate is 35 percent. Assume the asset class remains open after the asset is sold. What is the ending after-tax cash flow?

a) $7,398

b) $15,200

c) $21,855

d) $23,002

5. A firm taking a conservative approach with respect to its cash balance is most likely to be:

a) holding as much credit as possible.

b) holding as much cash as possible.

c) holding as much borrowing ability as possible.

d) holding as much long-term debt as possible.