Question :
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement : 1196194
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question. 24)
After-tax cash-operating flows are equal to 24)
______ A)
(one minus the tax rate) times (net income). B)
(one minus the tax rate) times (operating income) plus CCA. C)
(one minus the tax rate) times (sales less costs including CCA). D)
sales less (one minus the tax rate) times (cash costs). E)
(one minus the tax rate) times (sales less costs excluding CCA).
25)
When considering the net cash inflows resulting from a capital-budgeting decision, taxes will 25)
______ A)
reduce the amount of the cash savings by the tax rate. B)
reduce the amount of the cash savings by (1 – tax rate). C)
increase the amount of the cash savings by (1 + tax rate). D)
increase the amount of the cash savings by the tax rate. E)
increase the amount of the cash savings by (1 – tax rate).
26)
A capital proposal is projected to result in annual savings of $25,000. What is the after-tax cash flow if the tax rate is 35%? 26)
______ A)
$8,750 B)
$25,000 C)
$7,500 D)
$16,250 E)
$5,000
27)
Canada, like most taxing authorities, uses different methods for calculating amortization for tax purposes. The Income Tax Act uses which of the following methods? 27)
______ A)
straight-line and declining balance B)
accelerated amortization C)
double declining balance and accelerated amortization only D)
straight-line and accelerated amortization E)
straight-line, double declining balance, and accelerated amortization
28)
Wilf Company acquired an additional Class 10 (30% declining balance) asset for $60,000. The UCC at the beginning of the year was $100,000. CCA in the current year is 28)
______ A)
$24,000 B)
$48,000 C)
$39,000 D)
$37,500 E)
$45,000
29)
For 2001 through 2006 Better Product Company had annual net income of $20,000, CCA of $40,000 each year, a 40 percent tax rate, a discount rate of 10 percent and annual cash sales of $200,000. The amortizable assets of Better Product Company belong in several different classes under the Income tax Act, have a salvage value of zero at the end of six years, and were all bought new at the beginning of 2001. The present value factors, in simplified form, for 10 percent are:
YearPV of $1PV of annuity of $1
10.910.91
20.831.74
30.752.49
40.683.17
50.623.79
60.564.35
What is the expense deduction for CCA? 29)
______ A)
$36,000 B)
$40,000 C)
$24,000 D)
$42,500 E)
$16,000
30)
For 2001 through 2006 Better Product Company had annual net income of $20,000, a 40 percent tax rate, a discount rate of 10 percent and annual cash sales of $200,000. In 1995, the company claimed CCA of $40,000. The amortizable assets of Better Product Company have a salvage value of zero at the end of six years and were all bought new at the beginning of 2001 for a total cost of $360,000. The present value factors, in simplified form, for 10 percent are:
YearPV of $1PV of annuity of $1
10.910.91
20.831.74
30.752.49
40.683.17
50.623.79
60.564.35
What is the tax saving from CCA in 1995? 30)
______ A)
$54,000 B)
$24,000 C)
$14,400 D)
$36,000 E)
$16,000
31)
A company is considering the purchase of some equipment that in the second year of operation should cause an increase in sales of $200,000, an increase in cash expenses of $120,000, and CCA of $60,000. If the appropriate tax rate is 40%, what will be the after-tax effect of the equipment in year two? 31)
______ A)
net after-tax inflows of $72,000 B)
net after-tax inflows of $20,000 C)
net after-tax inflows of $50,000 D)
no effect E)
net after-tax inflows of $12,000
32)
If the appropriate tax rate is 35%, the after-tax effect of a single CCA deduction of $60,000 is 32)
______ A)
$39,000 net after-tax cash outflow. B)
$39,000 net after-tax cash inflow. C)
$21,000 net after-tax cash inflow. D)
$21,000 net after-tax cash outflow. E)
Either B or D is correct, depending on whether it is the year of acquisition or not.
33)
Biermann Equipment is a publicly held corporation required to pay income taxes. For 2001 it had revenues of $5,000,000 and cash expenses of $3,000,000, and claimed CCA of $200,000. The company has a 30 percent tax rate. What would be the net cash flow for 2001 if all revenues were received in cash? 33)
______ A)
$1,800,000 B)
$600,000 C)
$1,460,000 D)
$2,000,000 E)
$1,260,000
34)
The three factors that generally influence amortization for tax purposes are; amount allowable for amortization, allowable life of asset, and allowable methods of amortization. In Canada, for tax purposes, 34)
______ A)
the allowable amortization for tax purposes (CCA) is increased for the first year only. B)
the amount allowable for CCA is the cost of the asset, and, the allowable life of asset and the amount of salvage value are determined by its Class under the Income Tax Act. C)
the amount allowable for CCA is the cost of the asset; the tax-based amortization rate is determined by the Class of the asset under the Income Tax Act, and neither the estimated life of asset nor the amount of estimated salvage value are relevant in calculating amortization. D)
amortizable assets are placed in various classes by the Income Tax Act, based on their estimated salvage value. E)
Both B and C are correct.
