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##### finance homework mcq eco282

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Question;24. Real cash flow;occurring in year-2 is \$60,000. If the inflation rate is 5% per year, the real;rate of interest is 2%, calculate the cash flow for the year-2;a. \$60,000;b. \$55,422;C. \$66,150;d. None of;the above;26. Proper;treatment of inflation in the NPV calculation involves: I) Discounting nominal;cash flows using the nominal discount rate II) Discounting real cash flows;using the real discount rate III) Discounting nominal cash flows using the real;discount rates;a. I only;b. II only;c. III only;D. I and II only;27. A firm has;a general-purpose machine, which has a book value of \$300,000 and is sold for;\$500,000 in the market. If the tax rate is 35%, what is the opportunity cost of;using the machine in a project?;a. \$500,000;B. \$430,000;c. \$300,000;d. None of;the above;28. Capital;equipment costing \$250,000 today has 50,000 salvage value at the end of 5;years. If the straight line depreciation method is used, what is the book value;of the equipment at the end of two years?;a. \$200,000;B. \$170,000;c. \$140,000;d. \$50,000;40;Junjie Liu ? Econ 282 Practice;Multiple Choice;29. A capital;equipment costing \$400,000 today has no (zero) salvage value at the end of 5;years. If straight-line depreciation is used, what is the book value of the;equipment at the end of three years?;a. \$120,000;b. \$80,000;C. \$160,000;d. \$240,000;30. For;project Z, year - 5 inventories increase by \$6,000, accounts receivables by;\$4,000 and accounts payables by \$3,000. Calculate the increase or decrease in;working capital for year-5.;a. Increases;by \$6,000;b. Decreases;by \$4,000;C. Increases by \$7,000;d. Decreases;by \$7,000;31. For;project A in year-2, inventories increase by \$12,000 and accounts payable by;\$2,000. Calculate the increase or decrease in net working capital for year-2.;a. Decreases;by \$14,000;b. Increases;by \$14,000;c. Decreases;by \$10,000;D. Increases by \$10,000;32. Working;capital is one of the most common causes of misunderstanding in estimating;project cash flows. The following are the most common errors: I) forgetting;about working capital entirely II) forgetting that working capital may change;during the life of the project III) forgetting that working capital is;recovered at the end of the project IV) forgetting to depreciate the working;capital;a. I and II only;B. I, II, and III only;c. II, III;and IV only;d. I, II and;IV only;33. If the;depreciation amount is 600,000 and the marginal tax rate is 35%, then the tax;shield due to depreciation is;a. \$210,000;b. \$600,000;C. \$390,000;d. None of the above;41;Junjie Liu ? Econ 282 Practice;Multiple Choice;34. If the;depreciation amount is \$100,000 and the marginal tax rate is 35%, then the tax;shield due to depreciation is;A. \$35,000;b. \$100,000;c. \$65,000;d. None of;the above;35. If the;depreciable investment is \$600,000 and the MACRS 5-Year class schedule is;Year-1: 20%, Year-2: 32%, Year-3: 19.2%, Year-4: 11.5%, Year-5: 11.5% and;Year-6: 5.8% Calculate the depreciation for Year-2.;a. \$120,000;B. \$192,000;c. \$96,000;d. \$115,200;36. If the;depreciable investment is \$1,000,000 and the MACRS 5-Year class schedule is;Year-1: 20%, Year-2: 32%, Year-3: 19.2%, Year-4: 11.5%, Year-5: 11.5% and;Year-6: 5.8% Calculate the depreciation tax shield for Year-2 using a tax rate;of 30%;a. \$224,000;b. \$60,000;C. \$96,000;d. \$300,000;37. A project;requires an initial investment of \$200,000 and is expected to produce a cash;flow before taxes of 120,000 per year for two years. [i.e. cash flows will;occur at t = 1 and t = 2]. The corporate tax rate is 30%. The assets will be;depreciated using MACRS - 3 year schedule:(t = 1, 33%), (t = 2: 45%), (t = 3;15%), (t = 4: 7%). The company's tax situation is such that it can make use of;all applicable tax shields. The opportunity cost of capital is 12%. Assume that;the asset can be sold for book value. Calculate the NPV of the project;(Approximately);a. \$22,463;B. \$19,315;c. \$16,244;d. None of;the above;42;Junjie Liu ? Econ 282 Practice;Multiple Choice;38. A project;requires an initial investment of \$200,000 and is expected to produce a cash;flow before taxes of 120,000 per year for two years. [i.e. cash flows will;occur at t = 1 and t = 2]. The corporate tax rate is 30%. The assets will be;depreciated using MACRS - 3 year schedule: (t = 1, 33%), (t = 2: 45%), (t = 3;15%), (t = 4: 7%). The company's tax situation is such that it can make use of;all applicable tax shields. The opportunity cost of capital is 11%. Assume that;the asset can be sold for book value. Calculate the IRR for the project;(approximately);a. 12.00%;b. 11.00%;C. 17.73%;d. None of;the above;39. You have;been asked to evaluate a project with infinite life. Sales and costs are;projected to be \$1000 and \$500 respectively. There is no depreciation and the;tax rate is 30%. The real required rate of return is 10%. The inflation rate is;4% and is expected to be 4% forever.;Sales and costs will increase at the rate of inflation. If;the project costs \$3000, what is the NPV?;a. \$500.00;b. \$1629.62;C. \$365.38;d. None of;the above;40. A project;requires an investment of \$900 today. It has sales of \$1,100 per year forever.;Costs will be \$600 the first year and increase by 20% per year. Ignoring taxes;calculate the NPV of the project at 12% discount rate.;a. \$65.00;B. \$57.51;c. \$100.00;d. Cannot be;calculated as g > r;41. Two;machines, A and B, which perform the same functions, have the following costs;and lives.;Which machine would you choose? The two machines are;mutually exclusive and the cost of capital is 15%.;A. Machine A as the EAC is \$1789.89;b. Machine B;as the EAC is \$1922.88;c. Don't;buy either machine;d. Accept;both A and B;43;Junjie Liu ? Econ 282 Practice;Multiple Choice;42. Two;mutually exclusive projects have the following NPVs and project lives.;If the cost of capital is 15%, which project would you;accept? A. A;b. B;c. Both A;and B;d. Reject;both A and B;43. OM;Construction Company must choose between two types of cranes. Crane A costs;\$600,000, will last for 5 years, and will require \$60,000 in maintenance each;year. Crane B costs \$750,000 and will last for seven years and will require;\$30,000 in maintenance each year. Maintenance costs for cranes A and B are;incurred at the end of each year. The appropriate discount rate is 12% per;year. Which machine should OM Construction purchase?;a. Crane A;as EAC is \$226,444;B. Crane B as EAC is \$194,336;c. Crane A;as the PV is \$816,286;d. Cannot be;calculated as the revenues for the project are not given;44. You are;considering the purchase of one of two machines required in your production;process. Machine A has a life of two years. Machine A costs \$50 initially and;then \$70 per year in maintenance. Machine B has an initial cost of \$90. It;requires \$40 in maintenance for each year of its 3 year life. Either machine;must be replaced at the end of its life. Which is the better machine for the;firm? The discount rate is 15% and the tax rate is zero.;a. Machine A;as EAC for Machine A is \$100.76;B. Machine B as EAC for Machine B is \$79.42;c. Machine;A as PV of costs for Machine A is \$163.80;d. Machine B;as PV of costs for Machine B is \$181.33;44

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