Question : Objective 21.5 1) In the analysis of a capital budgeting proposal, : 1217105

Objective 21.5

1) In the analysis of a capital budgeting proposal, for which of the following items are there NO after-tax consequences?

A) cash flow from operations

B) gain or loss on the disposal of the asset

C) reduction of working capital balances at the end of the useful life of the capital asset

D) None of these answers is correct.

2) The Alpha Beta Corporation disposes a capital asset with an original cost of $170,000 and accumulated depreciation of $109,000 for $50,000. Alpha betas tax rate is 40%. Calculate the after-tax cash inflow from the disposal of the capital asset.

A) $4,400

B) ($4,400)

C) $54,400

D) $63,000

3) The Silver Shades Corporation disposes a capital asset with an original cost of $230,000 and accumulated depreciation of $125,000 for a salvage price of $36,000. Silver Shades’s tax rate is 30%. Calculate the after-tax cash inflow from the disposal of the capital asset.

A) $2,070

B) $38,070

C) $36,000

D) $56,700

4) The phenol Corporation has an annual cash inflow from operations from its investment in a capital asset of $25,000 each year for five years. The corporation’s income tax rate is 40%. Calculate the five years total after-tax cash inflow from operations.

A) $ 125,000

B) $ 150,000

C) $ 75,000

D) $25,000

5) The Lancaster Corporation has an annual cash inflow from operations from its investment in a capital asset of $22,000 each year for five years. The corporation’s income tax rate is 25%. Calculate the five years total after-tax cash inflow from operations.

A) $10,000

B) $82,500

C) $88,000

D) $110,000

6) Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as:

A) the audit trail

B) management control

C) a post-investment audit

D) a cost-benefit analysis

7) A capital budgeting tool that management can use to summarize the difference in the future net cash inflows from an intangible asset at two different points in time is referred to as:

A) the accrual accounting rate-of-return method

B) the net present value method

C) sensitivity analysis

D) the payback method

8) The focus in capital budgeting should be on:

A) the tax consequences of different investment strategies

B) the internal rate of return of different strategies

C) expected future cash flows that differ between alternatives

D) None of these answers is correct.

9) All of the following are major categories of cash flows in capital investment decisions EXCEPT:

A) the initial investment in machines and working capital

B) recurring operating cash flows

C) the initial working capital investment

D) depreciation expense reported on the income statement

10) An example of a sunk cost in a capital budgeting decision for new equipment is:

A) an increase in working capital required by a particular investment choice

B) the book value of the old equipment

C) the necessary transportation costs on the new equipment

D) All of these answers are correct.