Question : 30.              If the net-present-value of an investment positive, which of : 1370025

 

 

30.              If the net-present-value of an investment is positive, which of the following is not true?

A)Purchasing the proposed investment is acceptable

B)The expected return is greater than the firm’s cost of capital

C)The expected return is less than the firm’s hurdle rate.

D)The cost of the asset is less than the maximum price the firm is willing to pay for the investment.

 

31.If the net-present value of an investment is positive, which of the following is true?

A)The net-present-value represents the amount of profit the company will make if it buys the asset.

B)Describes the actual amount of the expected return.

C)Indicates that the return the new asset will generate is expected to exceed the cost of capital.

D)Describes the amount of difference between the expected return and the cost of capital.

 

32.   If the net-present value of an investment is negative, which of the following is true?

A)  The negative amount represents the cash the company will lose if it makes the

investment.

B)  The negative amount represents the amount the price of the investment must decrease

before the company would consider buying the operational asset.

C)  The negative amount represents the difference between actual return and expected

rate of return.

D)  The negative amount represents the difference in the expected rate of return and the

cost of capital.

 

33.   Donnelly Company is considering investing in a sizable piece of equipment and their

analysis yielded a  positive NPV of $23,500.  Which of the following statements is not

true?

A)  The new equipment will increase net income by $23,500

B)   Donnelly should buy the machine

C)   The new equipment is likely to generate a return greater than Donnelly’s cost of

capital.

D)  The Donnelly Company should recover the cost of the new equipment.

 

34.              If the net-present-value of an investment is negative, the:

A)Proposed investment should be rejected

B)Firm’s cost of capital is greater than the discount rate

C)Investment’s return is greater than the firm’s cost of capital

D)Cost of the asset is less than the present value of the future cash flows

 

35.              All of the below are part of the capital budgeting process, which of them is not based on an estimate.

A)  Amount of future cash flows

B)  Cost of the asset

C)  Timing of future cash flows

D)  Cost of capital

 

 

36.  Mega Corp conducted a NPV analysis that resulted in a negative NPV of $1,000.  Which of the following statements is true.

A)   The investment will reduced Mega’s net income by $1,000

B)    The investment will lose $1,000 over its life.

C)    The cash flows from the investment will not exceed its cost.

D)    All of the statements are false.

 

37.              Northstar, Inc. had sales of $650,000 and operating expenses of $480,000 for the year just ended. Included in the operating expenses was $35,000 of depreciation expense. If Northstar’s income tax rate is 40%, its net after-tax cash flows amounted to:

A)$102,000

B)$135,000

C)$137,000

D)$170,000

 

38.               Kaw Inc. had sales of $500,000 and cash operating expenses of $320,000 and depreciation expense of $50,000 for the year just ended. If Kaw’s income tax rate is 40%, its net after-tax cash flows amounted to:

A)$108,000

B)$160,000

C)$130,000

D)$128,000

 

 

39.              Paderno Inc. had cash sales of $1,300,000 and operating expenses of $825,000 for the year just ended.   Included in the operating expenses was $220,000 of depreciation expense with the rest being cash expenses. If Paderno’s income tax rate is 35%, its net after-tax cash flows amounted to:

A)$308,750

B)$528,750

C)$166,250

D)$594,750

 

 

 

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