Question : 50.              Ignoring income taxes, Union should: A)not purchase the equipment since : 1370027

 

 

50.              Ignoring income taxes, Union should:

A)not purchase the equipment since the net-present-value is negative

B)not purchase the equipment since the net-present-value is positive

C)purchase the equipment since the net-present-value is negative

D)purchase the equipment since the net-present-value is positive

 

 

51.              Which of the following must be estimated in order to compute the net present value of an investment?

A)Cost of capital, future cash flows, and initial cost

B)Cost of capital, future cash flows, and initial cost

C)Initial cost, future cash flows, and residual value

D)Initial cost, future income tax rates, and residual value

 

52.              Which of the following statements about the effect of depreciation on cash flows is correct?

A)It does not affect cash flows because it is a non-cash expense

B)It directly increases cash outflows, just like any other expense

C)It decreases cash outflows because it reduces a firm’s income tax liability

D)It affects cash flows only in those cases where an investment produces future revenues

 

53.              If a firm sells an asset at a gain, this indicates that the sales proceeds exceeded the

A)cost of the asset

B)fair value of the asset

C)book value of the asset

D)accumulated depreciation on the asset

 

54.              A method for assessing how changes in cash flows and/or cost of capital would affect a investment decision is

A)capital budgeting

B)sensitivity analysis

C)net present value analysis

D)time-adjusted rate of return analysis

 

55.              If income taxes are not considered, how are the following used in the computation of the net present value?

A)

B)

C)

D)

 

 

56.              If net present value is computed using after-tax cash flows which of following are included in the computation of the net present value?

A)

B)

C)

D)

 

57.  If income taxes are not considered, which of the following is true when computing net present value?

INCLUDE          EXCLUDE

A)    Depreciation         Losses

B)    Gains                     Residual Value

C)     Residual Value     Losses

D)    Disposal Cost       Gains

 

 

 

58.              Londo Company has a zero net present value based on a 10% cost of capital.  What is the expected rate of return for this project?

A)10%

B)less than 10%

C)more than 10%

D)unable to determine from the information given

 

 

59.              After arriving at a positive net present value, you recently presented an investment proposal to the investment committee at your company.  The committee directs you to recompute the net present value after adjusting the required rate of return for the higher-than-normal riskiness of the proposal.  How would you change the rate of return?

A)increase

B)decrease

C)no change

D)unable to determine from the information given

 

60.All things being equal, an increase in the desired rate of return due to risk will do which of the following to a positive net present value?

A)  Increase the net present value

B)  Decrease the net present value

C)  Have no impact on the net present value

D)  Unable to determine from the information given.

 

61.              After arriving at a positive net present value, you recently presented an investment proposal to the CFO of your company.  The CFO remarks that income tax rates are expected to decrease in the next few years.  How will a decrease in estimated tax rates affect the net present value?

A)increase

B)decrease

C)no effect

D)unable to determine from the information given

 

62.  Spivey Corp just conducted a NPV analysis on a $2,000,000 project that resulted in a

negative $1,000 NPV.  Which of the factors below might make you reconsider the

decision to reject the investment?

A)The person who forecasted the cash flows is very optimistic when making forecast.

B)The price of the investment might increase

C)The cost of capital is expected to increase

D)The period over which the asset is depreciated could be decreased.