Question : 41. Cash outflows from a capital investment project include: A. Incremental revenues.B. The reduction : 1208026

 

41. Cash outflows from a capital investment project include: 
A. Incremental revenues.
B. The reduction in the amount of working capital.
C. Increases in operating expenses.
D. All of the other answers are correct.

42. Select the incorrect statement concerning the present value index (PVI). 
A. The PVI is computed by dividing the total present value of the cash inflows by the present value of the cash outflows.
B. The PVI should be used to evaluate two or more projects whose initial investments differ.
C. The lower the PVI, the better.
D. A project whose PVI is positive will also have a positive net present value.

43. Britannia Company has two investment opportunities. A cash flow schedule for the investments is provided below:
  
Which of the following techniques would be most appropriate for choosing between Investment A and Investment B? 
A. Payback technique
B. Present value index
C. Net present value technique
D. None of the other answers are correct.

44. Mountain Brook Company is considering two investment opportunities whose cash flows are provided below:
  
The company’s hurdle rate is 12%. What is the present value index of Investment A? 
A. 1.01
B. 1.00
C. 0.97
D. None of the other answers are correct.

45. An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 10%, the investment will generate a present value index of: 
A. 0.789.
B. 1.268.
C. 2.500.
D. 7.745.

46. East Ridge Company is considering a capital project that delivers a $50,000 annual net cash flow before tax. The investment will result in annual depreciation expense of $10,000 over the project’s four-year useful life. Assuming a tax rate of 40%, what amount of annual after-tax net cash flow will be provided by this project? 
A. $40,000
B. $16,000
C. $24,000
D. $34,000

47. Synthesis Company is considering the purchase of a piece of equipment that costs $105,000. The equipment would be depreciated on a straight-line basis to its expected salvage value of $5,000 over its 10-year useful life. Assuming a tax rate of 40%, what is the annual amount of the depreciation tax shield provided by this investment? 
A. $10,000
B. $6,000
C. $4,000
D. None of the other answers are correct.

48. Nielsen Company is considering the purchase of an asset that will provide a depreciation tax shield of $20,000 per year for 10 years. Assuming the company is subject to a 40% tax rate during the period, what is the depreciable cost of the new asset? 
A. $200,000
B. $333,333
C. $500,000
D. Can’t be determined from the information provided

49. Mackinac Company is considering a capital project that costs $16,000. The project will deliver the following cash flows:
  
Using the incremental approach, the payback period for the investment is: 
A. 5 years.
B. 2.4 years.
C. 2 years.
D. 1.66 years.

50. Grange Company has the opportunity to purchase an asset that costs $45,000. The asset is expected to increase net income by $15,000 per year. Depreciation expense will be $5,000 per year. Based on this information the payback period is: 
A. 3 years.
B. 2.25 years.
C. 2.5 years.
D. 9 years.

 

 

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