Unformatted text preview:

Chapter 101. A taxable gain occurs when an asset is sold for more than its book value. For capital budgeting purposes, the taxes on the sale are treated as a:a. Reduction in cash and deducted from the sales pricei. The term SP-BV is our capital gain or loss. We multiply this by the tax rate to get the taxes we have to pay, this is subtracted from the selling price when calculating the net CFAT from salvage which is part of our terminal cash flow.2. You are advising a friend who is attempting to decide whether or not to drop one of the courses he is currently enrolled in. if they do, they will forfeit half of the money spent on tuition. Which of the following conclusions drawn by your friend is consistent with capital budgeting principles?a. Remaining in the class incurs opportunity cost because they have to reduce the number of hours they are gainfully employed (incremental,if he drops he can work more). The time and energy the put into the course thus far is a sunk cost.3. A firm moves into a higher tax bracket. All else equal, the depreciation tax shield will:a. Be more valuable4. A retail greeting card shop is considering expanding its operations to include the sale of unique gift items. Which of the following should be included in the initial cash outflow of the proposed expansion project?a. Initial cost of gift inventory (inventory is included)b. Cost to expand the showroom to allow space for displaying the gift items ( modifications to the building is also part of initial cost)5. Which of the following decreases net income and increases the operating cash flow?a. Depreciation- it’s a cost which lowers our ebit, and also our net income. But we add it back and thus have a higher CFAT due to the taxshield. 6. Which of the following best describes an opportunity cost?a. the current market value of equipment you won that you want to use for a new project.i. Opportunity costs will arise when the firm uses an asset it already owns. The opportunity costs that the firm gives up the opportunity to sell it to someone else since they decided to use it for the new project.7. Your firm is considering the purchase of a new machine that will replace an older model currently owned by the firm. Which of the following items should be included in the capital budgeting analysis?a. Cost savings that result from the purchase of a new machinei. incremental- cost savings result in CFATb. the net CFAT from salvage that would have been realized in the future if we kept the old machine.i. It’s a replacement issue. If you get a new machine then you willsell the old machine now. By selling it now you incur anopportunity cost, you give up the opportunity to sell it in the future.8. which of the following items would increase the initial cash outlay for a project?a. An increase in the inventory needed for the projecti. Increase NWCb. A decrease in accounts payable in order to meet guidelinesi. Decrease in liabilities, increase NWCc. Additional training needed to prepare employees.i. Training—shipping anything needed to get machine up and running is included.9. Which of the following statements are correct?a. All other things equal, a projects NPV will be higher if the firm uses modified ACRS instead of straight line depreciationi. Better to save money on taxes sooner, compounded.b. If the firm is considering a replacement project, the firm should include the incremental depreciation (that is the difference in depreciation between the old and new machine) in capital budgeting analysis.10. Which of the following is true?a. When calculating the initial cash outlay for a replacement project, we should include the Net CFAT from salvage from the sale of the old machine at year 0.b. The required return on a projet represents the opportunity cost to thefirm for a projectc. In the capital budgeting process, If we were to subtract interest expense when calculating CFAT we would be “double counting” finance costs and thus underestimate the true project NPV.Chapter 1211. which of the following investments was the least risky over the period 1926-2005? a. U.S. treasury bills 12. Which one of the following statements is accurate regarding market efficiency?a. In an efficient market, prices adjust quickly and correctly to new information.13. Which of the following statements is correct?a. The frequency distrobution of the returns on large company stocks is wider than the frequency distrobution of the returns on long term corporate bonds for the period 1926-2005.i. Stocks are riskier than bonds, wider distrobution.14. Which one of the following best describes the information reflected in the market prices if the financial markets are semi-strong form efficient?a. All public information15. Which of the following is the correct formula for capital gains yield?a. (Pt+1-Pt)/Pti. change in price divided by starting price16. Which of the following statements is true regarding risk premiums? a. U.S. treasury bills have 0 risk premium17. No one could benefit from inside information if the financial markets are?a. Strong form efficient18. Which one of the following has the widest frequency distrobution of returns based on the period 1926-2005?a. Small company stocksi. Wider means higher standard deviation, this if for the riskiest on the list. 19. Which of the following categories of securities had the most volatile returns for the period 1926-2005?a. Long term corporate bondsi. Highest from the list20. Which forms of market efficiency supports the idea that market prices reflectall public but not all private information?a. Semi-strong form21. Which one of the following categories produced the lowest average annual rate of return based on historical record for the period 1926-2005?a. Intermediate term government bondsi. Lowest risk, lowest return. Shorter than long term bonds, the longer the maturity the riskier the bond is.22. which of the following statements are correct?a. If an investor invested $1 in an index of small company stocks in 1926it would be worth 10,000 in 2003.b. An investment of $1 in an index of small company stocks in 1926 would be worth over 150 times more than investment in treasury billsover the same period.23. Which of the following statements is correct?a. Over the period 1926 to 2003 inflation had a higher variability than treasury bills.i. Higher standard deviation, higher return.b. Over the period 1926-2003 the risk return tradeoff applied across all of the investment types


View Full Document

FSU BUL 3310 - Chapter 10

Documents in this Course
Lecture 5

Lecture 5

16 pages

Exam 2

Exam 2

19 pages

Exam 2

Exam 2

10 pages

Chapter 1

Chapter 1

28 pages

Notes

Notes

3 pages

EXAM 4

EXAM 4

8 pages

Exam 1

Exam 1

16 pages

Contracts

Contracts

10 pages

CONTRACTS

CONTRACTS

19 pages

Test 4

Test 4

24 pages

Contracts

Contracts

18 pages

Exam 3

Exam 3

10 pages

Test 1

Test 1

16 pages

Civil Law

Civil Law

24 pages

Exam 1

Exam 1

16 pages

TEST 3

TEST 3

26 pages

Exam 3

Exam 3

6 pages

EXAM 3

EXAM 3

19 pages

Contracts

Contracts

15 pages

Exam 3

Exam 3

9 pages

Exam 3

Exam 3

9 pages

Test 2

Test 2

11 pages

Test 4

Test 4

10 pages

Contracts

Contracts

25 pages

Contracts

Contracts

25 pages

CONTRACTS

CONTRACTS

18 pages

Tort

Tort

21 pages

Tort

Tort

21 pages

Exam 2

Exam 2

9 pages

Exam 2

Exam 2

9 pages

Exam 2

Exam 2

13 pages

Test 4

Test 4

29 pages

Test 4

Test 4

24 pages

Contracts

Contracts

17 pages

Contracts

Contracts

17 pages

Contracts

Contracts

22 pages

Contracts

Contracts

22 pages

CONTRACTS

CONTRACTS

17 pages

Exam 1

Exam 1

9 pages

Exam 1

Exam 1

9 pages

Exam 1

Exam 1

19 pages

Test 4

Test 4

24 pages

Civil Law

Civil Law

28 pages

Tort

Tort

2 pages

Exam 2

Exam 2

4 pages

Load more
Download Chapter 10
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Chapter 10 and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Chapter 10 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?