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Exam (elaborations)

Corporate Finance Questions and Correct Answers & Latest Updated

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  • Course
  • Corporate Finance
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  • Corporate Finance

A cost that should be ignored when evaluating a project because that cost has already been incurred and cannot be recouped is referred to as a(n) o :## sunk cost. A cost-cutting project will decrease costs by $37,400 a year. The annual depreciation on the project's fixed assets will be $4,700...

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  • August 25, 2024
  • 24
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • Corporate Finance
  • Corporate Finance
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ExamArsenal
1|Page: 2024/2025 Grade A+




Corporate Finance Questions and Correct
Answers & Latest Updated
A cost that should be ignored when evaluating a project because that cost has already been

incurred and cannot be recouped is referred to as a(n)


o :## sunk cost.



A cost-cutting project will decrease costs by $37,400 a year. The annual depreciation on the

project's fixed assets will be $4,700 and the tax rate is 34 percent. What is the amount of

the change in the firm's operating cash flow resulting from this project?


o :## $26,282



A debt-free firm has net income of $107,400, taxes of $38,700, and depreciation of $19,300.

What is the operating cash flow?


o :## $126,700



A new project is expected to generate an operating cash flow of $38,728 and will initially

free up $11,610 in net working capital. Purchases of fixed assets costing $52,800 will be

required to start up the project. What is the total cash flow for this project at Time zero?


o :## -$41,190




Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update

,2|Page: 2024/2025 Grade A+


A nine-year project is expected to generate annual revenues of $137,800, variable costs of

$82,600, and fixed costs of $11,000. The annual depreciation is $23,500 and the tax rate is

34 percent. What is the annual operating cash flow?


o :## $37,162



A pro forma financial statement is a financial statement that:


o :## projects future years' operating results.



A project has annual depreciation of $15,028, costs of $82,592, and sales of $138,765. The

applicable tax rate is 34 percent. What is the operating cash flow according to the tax shield

approach?


o :## $42,183.70



A project has sales of $511,800, costs of $322,400, depreciation of $22,620, interest

expense of $3,062, and a tax rate of 34 percent. What is the value of the depreciation tax

shield?


o :## $7,690.80



A project requires $428,000 of equipment that is classified as seven-year property. What is

the depreciation expense in Year 3 given the following MACRS depreciation allowances,

starting with Year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?


o :## $74,857.20




Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update

, 3|Page: 2024/2025 Grade A+


Any changes to a firm's projected future cash flows that are caused by adding a new project

are referred to as


o :## incremental cash flows.



Contingency planning focuses on the:


o :## managerial options implicit in a project.



Dismal Outlook is unable to obtain financing for any new projects under any circumstances.

This company is faced with:


o :## hard rationing.



Custom Tailored Shirts is a specialty retailer offering T-shirts, sweatshirts, and caps. Its most

recent annual sales consisted of $21,000 of T-shirts, $18,000 of sweatshirts, and $2,900 of

caps. The company is adding polo shirts to the lineup and projects that this addition will

result in sales next year of $18,000 of T-shirts, $16,000 of sweatshirts, $11,500 of Polo

shirts, and $2,100 of caps. What sales amount should be used when evaluating the Polo

shirt project?


o :## $5,700



Forecasting risk is best defined as:


o :## estimation risk.




Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update

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