Question : 31.Cash outflows from a capital investment project include: A. increases in operating : 1257023

 

 

31.Cash outflows from a capital investment project include:   

A. increases in operating expenses.

 

B. the reduction in the amount of working capital.

 

C. terminal salvage value.

 

D. all of these answers are correct.

 

 

32.Select the incorrect statement concerning the present value index (PVI).   

A. The PVI is computed by dividing the total present value of the cash inflows by the present value of the cash outflows.

 

B. The PVI should be used to evaluate two or more projects whose initial investments differ.

 

C. The lower the PVI, the better.

 

D. A project whose PVI is positive will also have a positive net present value.

 

 

33.Garrison Company has two investment opportunities. A cash flow schedule for the investments is provided below:  Considering the unequal investments, which of the following techniques would be most appropriate for choosing between Investment A and Investment B?   

A. Payback technique

 

B. Present value index

 

C. Net present value technique

 

D. None of these answers is correct.

 

 

34.Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below:  The company’s hurdle rate is 12%. What is the present value index of Investment B? (Do not round your PV factors and intermediate calculations.)   

A. 1.01

 

B. 1.16

 

C. 0.86

 

D. None of these answers is correct.

 

 

35.An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a present value index of (Do not round your PV factors and intermediate calculations):   

A. 0.755.

 

B. 1.600.

 

C. 2.500.

 

D. 1.325.

 

 

36.Weston Company is considering a capital project that delivers a $50,000 annual net cash flow before tax. The investment will result in annual depreciation expense of $10,000 over the project’s four-year useful life. Assuming a tax rate of 40%, what amount of annual after-tax net cash flow will be provided by this project?   

A. $40,000

 

B. $16,000

 

C. $34,000

 

D. $24,000

 

 

37.Southport Company is considering the purchase of a piece of equipment that costs $100,000. The equipment would be depreciated on a straight-line basis to its expected salvage value of $10,000 over its 10-year useful life. Assuming a tax rate of 40%, what is the annual amount of the depreciation tax shield provided by this investment?   

A. $4,000

 

B. $9,000

 

C. $3,600

 

D. None of these answers is correct.

 

 

38.Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $10,000 per year for 10 years. Assuming the company is subject to a 40% tax rate during the period, and a zero salvage value, what is the depreciable cost of the new asset?   

A. $100,000

 

B. $250,000

 

C. $400,000

 

D. Can’t be determined from the information provided

 

 

39.Mendez Company is considering a capital project that costs $16,000. The project will deliver the following cash flows:  Using the incremental approach, the payback period for the investment is:   

A. 5 years.

 

B. 2 years.

 

C. 2.4 years.

 

D. 1.66 years.

 

 

40.George Company has the opportunity to purchase an asset that costs $40,000. The asset is expected to increase net income by $10,000 per year. Depreciation expense will be $5,000 per year. Based on this information the payback period is:   

A. 4 years.

 

B. 2.5 years.

 

C. 2.67 years.

 

D. 8 years.

 

 

 

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