51. Adam’s Manufacturing has the following information available regarding one of the projects it is considering:
Initial investment
$500,000
Net present value
80,000
The profitability index of this project is: A. 6.25.B. 0.16.C. 1.16.D. 0.86.
52. RicChallengingson Corporation has the following information available regarding one of the projects it is considering:
Initial investment
$800,000
Net present value
100,000
The profitability index of this project is: A. 0.889.B. 1.125.C. 8.000.D. 0.125.
53. Talley Manufacturing has a project that requires an initial investment of $150,000 and has the following expected stream of cash flows:
Year
Annual cash flow
1
$ 40,000
2
90,000
3
120,000
Assuming the company’s cost of capital is 14 percent, what is the profitability index for the project? A. 0.849B. 1.320C. 1.502D. 1.405
54. ABC Manufacturing has a project that requires an initial investment of $100,000 and has the following expected stream of cash flows:
Year
Annual cash flow
1
$80,000
2
60,000
3
20,000
Assuming the company’s cost of capital is 12 percent, what is the profitability index for the project? A. 0.749B. 1.335C. 1.600D. 2.985
55. Haven Inc. is in the 35 percent tax bracket and has a 12 percent rate of return. The after-tax rate of return is: A. 12.0 percent.B. 7.8 percent.C. 4.2 percent.D. 34.3 percent.
56. Morris Manufacturing is in the 25 percent tax bracket and has a 10 percent rate of return. The after-tax rate of return is: A. 7.5 percent.B. 3.6 percent.C. 36 percent.D. 4.4 percent.
57. Which of the following expenses for accounting purposes generates an indirect after-tax cash inflow for purposes of net present value computations? A. Repairs expenseB. Salaries expenseC. Depreciation expenseD. Tax expense
58. Which of the following statements is false regarding the impact of taxes on net present value computations? A. Most for-profit companies should take into account the impact of income taxes on capital investment decisions.B. The disposal of a long-term asset may have tax consequences.C. After-tax cash inflows will be less than before-tax cash inflows.D. All tax-deductible expenses involve cash outflows.
59. Assuming taxes are a consideration, which of the following would not have an overall positive effect on cash inflows when a company is computing the net present value of a potential capital investment? A. The asset’s salvage valueB. Cost savings per yearC. Depreciation expenseD. Initial capital investment
60. Siddon Inc. is considering investing in equipment that costs $24,000. The equipment would be depreciated using the straight-line method with no half-year convention over five years and have no salvage value. If the company has a 35 percent income tax rate and desires an after-tax rate of return of 11 percent on investments, the total present value of the depreciation tax shield is: A. $8,652.B. $8,400.C. $6,209.D. $997.
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