5
The Corner Market has decided to expand its retail store by building on a vacant lot it currently owns. This lot was purchased four years ago at a cost of $299,000, which the firm paid in cash. To date, the firm has spent another $38,000 on land improvements. all of which were also paid in cash. Today, the lot has a market value of $329,000. What value should be included in the analysis of the expansion project for the cost of the land?
Multiple Choice
The sum of the cash paid to date for both the lot and the improvements
The original purchase price only
The current market value of the land plus the cash paid for the improvements
The current market value of the land
Zaro because the land and the improvements were previously purchased with cash

6
Flo is considering three mutually exclusive options for the additional space she plans to add to her speciality women's store The cost of the expansion will be $148,000 She can use this additional space to add children's clothing, an exclusive gifts department or a home décor section She estimates the present value of the cash inflows from these projects are $121,000 for children's clothing $178,000 for exclusive gifts, and $145,000 for decorator items. Which option(s). if any. should she accept?
Multiple Choice
Children's clothing only
Exclusive gifts only
Exclusive gifts and decorator items only
All three options
None of these options

8
The operating cash flows of a project:
Multiple Choices
are unaffected by the depreciation method selected.
are equal to the project's total projected net income.
decrease when networking capital increases.
include any aftertax salvage values.
include erosion effects.

10
The ability to delay an investment:
Multiple Choice
is commonly referred to as the best-case scenario.
is valuable provided there are conditions under which the investment will have a positive net present value
ensures that the investment will have an expected net present value that is positive.
offsets the need to conduct sensitivity analysis.
is referred to as the option to abandon.

11
Six years ago, China Exporters paid cash for a new packaging machine that cost $347,000. Three years ago, the firm spent $14,300 on repairs and modifications to the machine The machine is now fully depreciated and has just sat idly in a back corner of the shop for the past seven months. The estimated value of the machine today is $157,500. The firm is considering using this machine in a new project. If it does so, what value should be assigned to this machine and included in the initial costs of the new project?
Multiple Choice
$0
$361,300
$157,500
$128,900
$171,800

12
Floral Shoppes has a new project in mind that will increase accounts receivable by $19,000, decrease accounts payable by $4,000, increase fixed assets by $27,000, and decrease inventory by $2,000. What is the amount the firm should use as the initial cash flow attributable to networking capital when it analyzes this project?
Multiple Choice
-$25,000
-$17,000
-$21,000
-$12,000
-$52,000

13
Jim's Hardware is adding a new product to its sales lineup. Initially, the firm will stock $36,000 of the new inventory. which will be purchased on 30 days' credit from a supplier. The firm will also invest $13,000 in accounts receivable and $11,000 in equipment. What amount should be included in the initial project costs for net working capital?
Multiple Choice
-$49,000
-$47,000
-$3,000
-$13,000
-$24,000

14
Your local athletic centre is planning a $1.2 million expansion to its current facility. This cost will be depreciated on a straight-line basis over a 20-year period. The expanded area is expected to generate $745,000 in additional annual sales. Variable costs are 39° per cent of sales, the annual fixed costs are $140,000, and the tax rate is 21 per cent What is the operating cash flow for the first year of this project?
Multiple Choice
$218,336.00
$201,015.00
$261,015.50
$371,615.50
$314,450.00

15
A new project is expected to generate an operating cash flow of $75,560 and will initially free up $12,250 in net working capital. Purchases of fixed assets costing $75,000 will be required to start up the project. What is the total cash flow for this project at Tim zero?
Multiple Choice
-$64,410
-$62.750
-$75,000
-$87.250
$62,250

16
Kite Flite is considering making and selling custom kites in two sizes, The small kites would be priced at $12 and the large kites would be $39 The variable cost per unit is $5 and $14, respectively. Jill, the owner, feels that she can sell 1,900 of the small kites and 1.400 of the large kites each year The fixed costs would be only $1,890 a year and the tax rate is 34 percent What is the annual operating cash flow if the annual depreciation expense is $3807
Multiple Choice
$26,06412
$30,759.80
$29,848.20
$28,309.40
$30,630.60

17
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?
Multiple Choice
$89,038.42
$48,447.30
$56,038.15
$74,857.20
$104,817.20

18
Northern Lighting purchased some three-year MACRS property three years ago. What is the current book value of this equipment if the original cost was $385,000? The MACRS allowance percentages are as follows. commencing with Year 1: 33.33, 44.45, 14.81. and 7.41 per cent
Multiple Choice
$0
$57,037.75
$28,528.50
$85,54700
$96,250.00

19
You are analyzing a project and have developed the following estimates The depreciation is $13,600 a year and the tax rate 1 34 per cent What is the base-case operating cash flow?
                        Base-Case Lower Bound Upper Bound
Unit sales             2,100             ,850             2,358
Sales price per unit $ 55                $ 53                $ 57
Variable cost per unit $ 37             $ 36                $ 38
Fixed costs          $14,800       $13,800          $15,800

Multiple Choice
$8,770
$6,204
$11,433
$19,804
$20,410

20
You are analyzing a project and have developed the following estimates. The depreciation is $47,900 a year and the tax rate is 35 per cent What is the worst-case operating cash flow?
                              Base-Case    Lower Bound Upper Bound
Unit sales                11,300             9,800                12,800
Sales price per unit       $ 39             $ 34                   $ 44
Variable cost per unit    $ 25             $ 24                   $ 26
Fixed costs             $ 9,700             $9,200             $10,200
Multiple Choice
-$2,545
$11,145
$88,855
$27,556
$61,095

21 Newton Industries is considering a project and has developed the following estimates unit sales - 4,800, price per unit - $67. variable cost per unit = $42 annual fixed costs = $11,900 The depreciation is $14,700 a year and the tax rate is 34 percent What effect would an increase of $1 in the selling price have on the operating cash flow?
Multiple Choice
$3.168
$4,823
$1
$83,448
$82,368

22
Global Water Treatment Inc. is analyzing a proposed investment that would initially require $750,000 of new equipment This equipment would be depreciated on a straight-line basis to a zero balance over the four-year life of the project. The estimated salvage value is $150,000. The project requires $50,000 initially for net working capital, all of which will be recouped at the end of the project. The projected operating cash flow is $ 265,000 a year. What is the internal rate of return on this project if the relevant tax rate is 21 percent?
Multiple Choice
15.51 percent
15.98 percent
2012 percent
17.64 percent
17.99 percent

23
Consider an asset that costs $311,000 and is depreciated straight-line to zero over its six-year tax life. The asset is to be used in a four-year project, at the end of the project, the asset can be sold for $58,000 If the relevant tax rate is 34 percent. what is the after-tax cash flow from the sale of this asset?
Multiple Choice
$73,526.67
$68,411.19
$70,103.33
$40,466.67
$42,473.33

5 The Corner Market has decided to expand its retail store by buil...