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116.     An asset with a book value of $320,000 is sold at a $240,000 pre-tax gain in a year when the tax rate is 40%.


 

     a.     $144,000     
     b.     $656,000
     c.     $464,000     
     d.     $560,000
                    
     

117.     An asset with a book value of $320,000 is sold at a $240,000 pre-tax gain in a year when the tax rate is 40%.


 

     a.     A $144,000 cash outflow     
     b.     A $656,000 cash outflow
     c.     A $224,000 cash outflow     
     d.     A $96,000 cash outflow

     
118.     An asset with a book value of $160,000 is sold at a loss (before taxes are considered) of $40,000. If the applicable tax rate is 20%, the net after-tax cash effect of this transaction is a(n):

     a.     $8,000 cash inflow
     b.     $8,000 cash outflow
     c.     $48,000 cash inflow
     d.     $128,000 cash inflow

     


119.     An asset with a book value of $200,000 is sold at a loss (before taxes are considered) of $40,000. If the applicable tax rate is 20%,


 

     a.     $8,000 cash inflow     
     b.     $8,000 cash outflow
     c.     $48,000 cash inflow     
     d.     $208,000 cash inflow

     

120.     The cash inflow effect of a disposal at a gain is equal to the:

     a.     amount of the loss plus the tax paid
     b.     amount of the loss minus the tax paid
     c.     selling price plus the tax paid
     d.     selling price minus the tax paid

LEARNING OBJECTIVE 7

121.     The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project is known as the:

     a.     accelerated recovery period
     b.     internal return period
     c.     payback period
     d.     accounting return period

122.      Identify which of the following statements regarding the payback model is false.

     a.     The payback model measures how quickly investment dollars may be recouped.
     b.     The payback model measures profitability.
     c.     A project with a shorter payback time is not necessarily preferable to one with a longer payback time.
     d.     The payback model provides a rough estimate of risk.

123.     


 

     a.     Accounting rate of return
     b.     Payback
     c.     Internal rate of return
     d.     Net present value


124.     Identify which one of the following is a reason to study a simpler model such as the payback method.

     a.     The payback method is the most popular method of capital budgeting.
     b.     Simpler models are more accurate because they require less estimation.
     c.     Simpler models might provide some useful information to supplement the discounted-cash-flows analysis.
     d.     Simpler models are conceptually superior to discounted-cash-flows analysis.

125.     An initial investment of $42,000 is expected to generate annual cash flows of $10,000, $15,000, $15,000, and $12,000, respectively. Assume straight-line depreciation and ignore income taxes. The payback period is:

     a.     3.83 years
     b.     3.17 years
     c.     3 years
     d.     indeterminable because the cash flows are uneven

     
126.      An initial investment of $180,000 is expected to generate $85,000 in annual cost savings over the asset’s expected 3-year life. Assume straight-line depreciation and ignore income taxes. The payback period is:

     a.     3.0 years
     b.     0.88 years
     c.     2.12 years
     d.     None of these answers is correct.

     
127.     An initial investment of $270,000 is expected to generate $120,000 in annual cost savings over the asset’s expected 3-year life. Assume straight-line depreciation and ignore income taxes. The payback period is:

     a.     0.75 years
     b.     3.00 years
     c.     2.25 years
     d.     2.40 years

     

128.     An initial investment of $180,000 is expected to generate $75,000 in annual cost savings over the asset’s expected 3-year life. Assume straight-line depreciation and ignore income taxes. The accounting rate of return based on initial investment is:

     a.     41.67%     
     b.     8.33%
     c.     16.67%     
     d.     None of these answers is correct.

     

129.      An initial investment of $270,000 is expected to generate $120,000 in annual cost savings over the asset’s expected 3-year life. Assume straight-line depreciation and ignore income taxes. The accounting rate of return based on initial investment is:

     a.     11.11%
     b.     44.44%
     c.     33.33%
     d.     None of these answers is correct.

     
LEARNING OBJECTIVE 8

130.     The purposes of postaudits include all of the following except:

     a.     seeing that investment expenditures are proceeding on time and within budget
     b.     providing information for improving future predictions of cash flows
c.     evaluating the continuation of the project
d.     comparing actual project results with similar projects to evaluate manager performance

LEARNING OBJECTIVE 9

131.     


 

     a.     Inflation
     b.     The nominal rate
     c.     The payback period
     d.     The accounting rate of return

132.     


 

     a.     The nominal rate
     b.     The predicted operating cash flows
     c.     The tax effect of depreciation
     d.     None of these answers is correct.

133.     The annual cash operating inflows, after taxes, of a newly purchased asset are expected to be $60,000. The expected useful life is 5 years; the nominal rate includes an inflation factor of 5%. The annual cash operating inflow for 1 year is:

a.     $60,000
     b.     $63,000
     c.     $66,150
     d.     $57,000

     

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