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86.     The automatic rejection of one investment upon the acceptance of another investment is the definition of:

     a.     inflation
     b.     differential analysis
     c.     unequal time periods
d.     mutually exclusive investments

87.     Identify which one of the following statements is true.

     a.     Comparisons between alternatives are best made without considering tax effects.
     b.     Predictions of cash flows and discount rates should be computed without regard to inflation.
     c.     When two projects are mutually exclusive, the project that has the smallest net present value should be undertaken.
d.     If alternate projects have unequal lives, comparisons may be made over the useful life of either the longer-lived project or the shorter-lived one.

88.      


 

     a.     Depreciation     
     b.     Future disposal value
     c.     Operating cash flows     
d.     Initial cash inflow and outflow at time zero

89.      The disposal value at the date of termination of a project is:

     a.     an increase in the cash inflow in the year of disposal
     b.     an increase in the cash outflow in the year of disposal
     c.     a decrease in the cash inflow in the year acquired
d.     a decrease in the cash outflow in the year acquired

90.      In relevant-cost analysis, the only pertinent overhead costs are those that:

     a.     vary with production levels
     b.     will differ among alternatives
     c.     are fixed within a relevant range
d.     remain the same among alternatives


91.     


 

a.     The initial investment of inventories and receivables
     b.     The disposal value of new equipment
     c.     The installation cost of new equipment
     d.     The disposal cost of old equipment

92.     A reduction in a cash outflow:

a.     is treated as a cash inflow
     b.     reduces the future disposal value of an asset
     c.     increases the future disposal value of an asset
     d.     is not relevant for capital budgeting

LEARNING OBJECTIVE 5

93.     When considering the net cash inflows resulting from a capital-budgeting decision, taxes will:

     a.     reduce the amount of the cash savings by the tax rate
     b.     increase the amount of the cash savings by the tax rate
     c.     increase the amount of the cash savings by (1 tax rate)
d.     reduce the amount of the cash savings by (1 tax rate)

94.     Ajax Company pays 15% on the first $50,000 of pretax income and 30% on any additional pretax income. Ajax Company currently earns $52,000. An investment under consideration is expected to add $20,000 in pretax income.


 

     a.     15%
     b.     30%
     c.     22.5%
     d.     None of these answers is correct.

95.      The marginal tax rate is:

     a.     the average rate for the company
     b.     the highest possible rate the company might be expected to pay
     c.     the lowest tax rate applicable to the company
     d.     the rate paid on additional amounts of pretax income


96.     A company pays taxes of 25% on their first $25,000 of pretax income, and 35% on any taxable income in excess of $25,000. The marginal tax rate, if current pretax income is $30,000, is:

     a.     25%          
     b.     30%
     c.     35%          
     d.     None of these answers is correct

97.     Acme Company, with pretax income of $80,000, is required to pay taxes of 25% on all income up to $20,000 and 35% on any income in excess of $20,000. Acme Company 's average tax rate is:

     a.     25.0%          
     b.     26.5%
     c.     30.0%     
d.     32.5%


98.     Chaparral Company pays taxes of 25% on their first $30,000 of pretax income, and 35% on any taxable income in excess of $30,000. The marginal tax rate, if current pretax income is $45,000, is:

     a.     60%          
     b.     25%
     c.     30%          
d.     35%

99.     Buffy Company pays taxes of 15% on their first $20,000 of pretax income, and 30% on any taxable income in excess of $20,000. The average tax rate, if current pretax income is $50,000, is:

     a.     15%          
     b.     21%
     c.     24%          
d.     30%


100.     Accelerated depreciation:

a.     reduces an asset’s estimated useful life
     b.     charges a larger proportion of an asset’s cost to the earlier years
     c.     charges a larger proportion of an asset’s cost to the later years
     d.     increases an asset’s recovery period

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