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Question 1 (Multiple Choice Worth 5 points) St...




Question 1 (Multiple Choice Worth 5 points) Stain Corp. has forecasted that over the next four years the average annual after-tax income will be $500,731. The average book value of the manufacturing equipment that is used is $737,095. What is the accounting rate of return? 53.3% 71.4% 67.9% 42.3% Question 2 (Multiple Choice Worth 5 points) Stembridge Company is setting up to manufacture a new line of products. The cost of the manufacturing equipment is $750,000. Expected cash flows over the next four years are $125,000, $250,000, $400,000 and $500,000. Given the company?s required rate of return of 15 percent, what is the NPV of this project? $96,615 $119.806 $69,806 $22,607 Question 3 (Multiple Choice Worth 5 points) Ironwood Boats, Inc. has taken a project that has reduced working capital needs of $12,000 last year as well as $23,000 this year. What should be the terminal cash flow at the conclusion of the project, with respect to the additional working capital? $23,000 inflow $23,000 outflow $35,000 inflow $35,000 outflow Question 4 (True/False Worth 5 points) The accounting rate of return method ignores the time value of money. True False Question 5 (True/False Worth 5 points) When future cash flows from a project include both positive and negative cash flows, the cash flow pattern is said to be conventional. True False Question 6 (True/False Worth 5 points) Working capital items include cash and cash equivalents, accounts receivable, inventories, and accounts payable. True False Question 7 (Multiple Choice Worth 5 points) Cash flows from operations: ElectricEye Technonogies is considering introducing a new line of optic devices. The expected annual sales number of the devices is 10,000 per year; the price is $5,000 per device, and the variable costs of production amount to $2,000 per unit. The fixed costs (including depreciation) are $10 million per year. Depreciation costs are $5 million per year. The marginal tax rate is 40%. What is the incremental annual cash flow from operations for the new line? $25 million $20 million $15 million $12 million Question 8 (True/False Worth 5 points) A progressive tax system is one in which taxpayers will pay higher tax rates on their income as they have higher amounts of earnings. True False Question 9 (True/False Worth 5 points) The terminal year of a project often includes cash flows that are not typically included in the calculations of FCF for other years. True False Question 10 (Multiple Choice Worth 5 points) Simplified Micro Devices has a contract to sell 10,000 mousetraps to the Department of Defense (DOD). The mousetraps will sell for 45.50 apiece. However, there is a 20 percent probability that total expenses will be $40,000 and an 80 percent probability that total expenses will be $50,000. What is the expected pretax income for the firm?s DOD sales? $407,000 $48,000 $55,000 None of the above. Question 11 (Multiple Choice Worth 5 points) Mack?s Mild Lemonade has taken a five year project with an NPV of $4,500. If the discount rate on the project is 12 percent, then what is the equivalent annual annuity for the project? (Round to the nearest dollar.) $4,500 $1,500 $1,248 None of the above. Question 12 (True/False Worth 5 points) When comparing projects with different lives, the net present value of each unadjusted project can be used to determine which project is superior. True False Question 13 (Multiple Choice Worth 5 points) Stockman Plumbing bought new machinery for $4 million. This is expected to result in additional annual cash flows of $930,000 for the next eight years. The firm?s cost of capital is 15 percent. What is the discounted payback period for this project? If their acceptance period is five years, will this project be accepted? 5.41 years; no 7.43 years; no 4.61 years; yes 4.26 years; yes Question 14 (Multiple Choice Worth 5 points) Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million, and the project is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company?s cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.) 22% 20% 24% 28% Question 15 (Multiple Choice Worth 5 points) Pettigout?s Seafood Supplies is contemplating using its boat for additional duties. If it does so, then the boat will have to be replaced three years earlier than without the additional duties. The current boat will need to be replaced in seven years. If a new boat will cost $350,000, then what is the cost of using the old boat for the additional duties if the cost of capital is 8 percent? $50,000.00 $67,225.34 $137,528.44 $350,000.00 Question 16 (True/False Worth 5 points) The NPV method is called a discounted cash flow technique. True False Question 17 (Multiple Choice Worth 5 points) Sao Paulo Sporting Goods is getting ready to produce a new line of soccer equipment by investing $1.5 million. The investment will result in additional cash flows of $435,000, $782,500, and $1,000,000 over the next three years. What is the payback period for this project? 3 years 2.3 years 1.6 years more than 3 years Question 18 (True/False Worth 5 points) Capital budgeting projects may be classified as independent, mutually exclusive, or contingent. True False Question 19 (True/False Worth 5 points) If expected inflation is positive, then nominal rates of return will be higher than real rates of return. True False Question 20 (True/False Worth 5 points) The cost of capital is the minimum return a project has to earn in order for it to be accepted. True False


Paper#7185 | Written in 18-Jul-2015

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