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Question;151. If;a firm has unlimited funds to invest in capital assets;all independent projects that meet its minimum investment criteria;should be implemented.;152. The;following three projects would seem to compete with one another form the firm's;resources and therefore would be examples of mutually exclusive projects.;(1) installing air;conditioning in the plant;(2) acquiring a;small supplier;(3) purchasing a;new computer system;153. If;a firm has unlimited funds to invest, all the mutually exclusive projects that;meet its minimum investment criteria can be implemented.;154. Mutually;exclusive projects are projects whose cash flows are unrelated to one another;the acceptance of one does not eliminate the others from further consideration.;155. A;conventional cash flow pattern is one in which an initial outflow is followed;only by a series of inflows.;156. A;nonconventional cash flow pattern is one in which an initial outflow is;followed only by a series of inflows.;157. A;nonconventional cash flow pattern is one in which an initial outflow is;followed by a series of both inflows and outflows.;158. Relevant;cash flows are the incremental cash outflows and inflows associated with a;proposed capital expenditure.;159. The;three major cash flow components include the initial investment, operating cash;inflows, and terminal cash flows.;160. International;capital budgeting differs from domestic capital budgeting because (1) cash;inflows and outflows occur in a foreign currency, and (2) foreign investments;potentially face significant political risk.;161. In;case of international capital budgeting, a U.S. company can minimize its;political risk by creating a joint venture with a competent and well-connected;local partner.;162. Sunk;costs are cash outlays that have already been made and therefore have no effect;on the cash flows relevant to the current decision. As a result, sunk costs;should not be included as relevant in computing a project's incremental cash;flows.;163. Opportunity;costs should be included as cash cash flows when determining a;project's incremental cash flows.;164. A;corporation is considering expanding operations to meet growing demand. With;the capital expansion, the current accounts are expected to change. Management;expects cash to increase by $20,000, accounts receivable by $40,000, and;inventories by $60,000. At the same time accounts payable will increase by;$50,000, accruals by $10,000, and long-term debt by $100,000. The change in net;working capital is;A) an increase;of $120,000.;B) a decrease;of $40,000.;C) a decrease;of $120,000.;D) an increase;of $60,000.;165. A;corporation is considering expanding operations to meet growing demand. With;the capital expansion the current accounts are expected to change. Management;expects cash to increase by $10,000, accounts receivable by $20,000, and;inventories by $30,000. At the same time accounts payable will increase by;$40,000, accruals by $30,000, and long-term debt by $80,000. The change in net;working capital is;A) an increase;of $10,000.;B) a decrease;of $10,000.;C) a decrease;of $90,000.;D) an increase;of $80,000.;166. A;corporation is selling an existing asset for $21,000. The asset, when;purchased, cost $10,000, was being depreciated under MACRS using a five-year;recovery period, and has been depreciated for four full years. If the assumed;tax rate is 40 percent on ordinary income and capital gains, the tax effect of;this transaction is;A) $0 tax;liability.;B) $7,560 tax liability.;C);$4,400 tax liability.;D) $7,720 tax;liability.;167. A;corporation is selling an existing asset for $1,700. The asset, when purchased;cost $10,000, was being depreciated under MACRS using a five-year recovery;period, and has been depreciated for four full years. If the assumed tax rate;is 40 percent on ordinary income and capital gains, the tax effect of this;transaction is;A) $0 tax;liability.;B) $840 tax;liability.;C);$3,160 tax liability.;D) $3,160 tax;benefit.;168. A;corporation is selling an existing asset for $1,000. The asset, when purchased;cost $10,000, was being depreciated under MACRS using a five-year recovery;period, and has been depreciated for four full years. If the assumed tax rate;is 40 percent on ordinary income and capital gains, the tax effect of this;transaction is;A) $0 tax;liability.;B) $1,100 tax;liability.;C);$3,600 tax liability.;D) $280 tax;benefit.;169. A;mixer was purchased two years ago for $120,000 and can be sold for $125,000;today. The mixer has been depreciated using the MACRS 5-year recovery period;and the firm pays 40 percent taxes on both ordinary income and capital gain.;(a) Compute;recaptured depreciation and capital gain (loss), if any.;(b) Find;the firm's tax liability.;170. An;asset was purchased three years ago for $100,000 and can be sold for $40,000;today. The asset has been depreciated using the MACRS 5-year recovery period and;the firm pays 40 percent taxes on both ordinary income and capital gain.;(a) Compute;recaptured depreciation and capital gain (loss), if any.;(b) Find;the firm's tax liability.

 

Paper#50917 | Written in 18-Jul-2015

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