BUSI 320 Read & Interact Block, Hirt, & Danielsen Chapter 12 solutions complete answers

BUSI 320 Read & Interact Block, Hirt, & Danielsen Chapter 12 solutions complete answers

 

Elective expensing applies to companies that purchase no more than $   in total property purchases within a year. (Omit the dollar sign and commas)

 

A company purchases a new machine that provides a cost savings of $50,000. The company's tax rate is 35%. What is the company's aftertax savings?

 

The firm is considering the replacement of an old machine that has a current market value of $15,000 and a book value of $20,000 with a new machine that has a purchase price of $100,000. The firm's tax rate is 35%. The net cost of the new machine is $ . (Omit the dollar sign and commas)

 

Section 179 elective expensing is primarily beneficial to large businesses.

 

ADR (asset depreciation range) represents the

 

Projects with heavier late cash flows are penalized more than projects with heavier early cash flows at higher discount rates.

 

Characteristics of an investment can be summarized using the

 

The internal rate of return (IRR) measures the

 

True or false: the payback method computes the time required to recoup the initial investment.

 

Who is responsible for making decisions regarding major capital expenditures

 

If investments are not mutually exclusive, the company can select how many investments.

 

Maximum, Inc. is considering a new six-year expansion project that requires an initial fixed asset investment of $100,000. The fixed assets will be depreciated using the 5-year MACRS class. The project is estimated to generate $150,000 in annual sales, with the costs of $80,000. If the tax rate is 35% and the company uses a discount rate of 10%, what are the operating cash flows for this project in year 1?

 

An alternative method that combines the reinvestment assumptions of the NPV with the IRR is the       .

 

A disadvantage of the payback method is

 

In a mutually exclusive investment decision the firm will choose the investment that has the highest

 

Investment B’s curve falls below investment A’s curve at every point on the graph. Investment      (A or B) is superior.

 

The payback method fails to consider

 

The company's tax rate is 35%. The company's tax shield benefits due to incremental depreciation for year 1 is $____.

 

 

Under the payback method, the investment that ____ is the one selected.

 

The net present profile is a way to ____ portray the net present value of a project at different discount rates.

 

Under capital rationing, a project will be deemed unacceptable if

 

All of the following are advantages of the payback method except

 

MACRS classifies assets into _____ categories to determine the allowable rate of depreciation.

 

A replacement decision can involve several additions to the basic investment decision. What are the additions to be considered?

 

A company purchases new equipment costing $200,000 that provides an annual cost saving of $25,000. The company's tax rate is 35%. The company's annual after-tax savings is $______.

 

The reinvestment assumption of the net present value assumes that all inflows can be reinvested at the

 

Using MACRS, what is the total amount of depreciation for an automobile that cost the company $25,000 and has a residual/salvage value of $5,000?

 

Net present value is the preferred investment selection method because it

 

The firm is considering the replacement of an old machine that has a current market value of $20,000 and a book value of $15,000 with a new machine that has a purchase price of $100,000. The firm's tax rate is 35%. The net cost of the new machine is $

 

Based on the table below, which investment alternative(s) will the firm choose if their cost of capital is 12%?

 

 

The curves of Investment A and Investment B cross one another at 10%. If Investment A's curve falls below investment B's curve prior to the crossover point, which investment is superior at discount rates less than 10% (A or B) ?

 

Which capital budgeting method makes the conservative assumption that each inflow can be reinvested at the discount rate?

 

Maximum, Inc. is considering a new six-year expansion project that requires an initial fixed asset investment of $100,000. The fixed assets will be depreciated using the 5-year MACRS class. The project is estimated to generate $150,000 in annual sales, with the costs of $80,000. If the tax rate is 35% and the company uses a discount rate of 10%, what is the present value of the cash flows in year 2?

 

The firm has 2 investment opportunities to choose from, A or B. The cash inflows for each investment of $50,000 is provided in the table below. Using the payback method the firm should choose investment (A or B)?

 

 

Which of the following rates are required when applying the net present value profile.

 

In a mutually exclusive investment decisions the firm will choose the investment that has the highest

 

If the NPV for an investment is equal to zero, the firm will

 

Net present value is the sum of the ________ values of all cash outflows and inflows related to a project.

 

Match the capital budgeting method with the correct definition

 

In order, what are the steps required in the decision making process of a good capital budgeting program

 

What are the methods used to evaluate capital expenditures?

 

Capital budgeting decisions emphasize     flows.

 

Based on the information provided in the table below, what is the net present value of the investment with a discount rate of 10%?

 

 

 
 
 
Elective expensing applies to companies that purchase no more than $____ in total property purchases within a year.
 
 
 
Based on the information provided in the table below, what is the net present value of the investment with a discount rate of 8%?
 
 
 
A company is trying to determine if the purchase of a new computer costing $60,000 is a good decision. Using the information in the table below and a discount rate of 10%, the investment's net present value is $_____.
 
 
 
The company's tax rate is 35%. The company's tax savings due to incremental depreciation for year 2 is $____.
 
 
 
A company purchases a new machine that provides a cost saving of $50,000. The company's tax rate is 35%. What is the company's aftertax savings?
 
 
 
Using the 7-year MACRS, what is the amount of depreciation in year 2 for manufacturing equipment that cost the company $200,000 and has a residual/salvage value of $5000
 
 
 
The firm is considering the replacement of an old machine that has a current market value of $15,000 and a book value of $20,000 with a new machine that has a purchase price of $100,000. The firm's tax rate is 35%. The net cost of the machine is $_____.
 
 
 
Using the information in the following table and a discount rate of 10%, the firm's present value of incremental benefits is $______.
 
 
 
The company's tax rate is 35%. The company's tax shield benefits for 1 year is $____
 
 
 
If investments are mutually exclusive, the company can select how many investments,
 
 
 
If the NPV for an investment is greater than zero, the firm will
 
 
 
When using the payback method, inflows after the cut off period
 
 
 
Capital rationing is a(n)
 
 
 
ADR (asset depreciation range) represent the
 
 
 
The need to use external sources of financing for investment projects may lead to ____ rationing
 
 
 
An artificial constraint placed by the management of a firm on the amount of funds that can be invested in a given period is known as
 
 
 
Capital budgeting decision making emphasizes _____ flows
 
 
 
All of the following are advantage of the payback method except
 
 
 
The net present value method requires that all inflows provide a return that is equal to the
 
 
 
The internal rate of return (IRR) is the interest rate that makes net present value (NPV)
 
 
 
MACRS is the method of depreciation used
 
 
 
A replacement decision can be made using either a total analysis or an _____ analysis
 
 
 
Which conceptually sound methods used to evaluate capital expenditures are more acceptable and should be applied to most situations?
 
 
 
 
 
 
 
 
 

39.
It provides a more theoretically correct answer
It provides a more conservative answer
It uses a more realistic reinvestment assumption
 
The advantage(s) of using the MIRR
 
 
 
An alternative method that combines the reinvestment assumption of the NVP with the IRR is the
 
 
 
Under capital rationing, acceptable projects must be ranked and only those with the highest ____will be chosen.
 
 
 
A company is trying to determine if the purchase of a new computer costing $70,000 is a good decision. The company's present value of incremental benefits is $68,000. Is this a good investment for the company?
 
 
 
Depreciation is added back to accounting flows to provide cash flows because depreciation is
 
 
 
An important investment characteristic(s) required to apply the net present value profile is/are
 
 
 
Which method used to evaluate capital expenditures is not a conceptually sound method?
 
 
 
The use of the ___ method depends on the firm's rule of thumb
 
 
 
Capital rationing hinders a firm from achieving maximum ______.
 
 
 
The internal rate of return (IRR) measure the
 
 
 
The payback method may be of particular interest to firms in industries characterized by
 
 
 
A decision concerning the purchase of new technology to replace old technology is called a _____ decision
 
 
 
An advantage of the payback method is
 
 
 
An investment can perform better than another at low discount rates and perform poorly to the other at high discount rates due to the
 
 
 
True or False: the payback method computes the time required to recoup the initial investment
 
 
 
 
 
 
 

 
 
 
To assume that investments with very high IRR's can be reinvested at an equally high rate is
 

 

1.
The advantage of using the MIRR
 
 
5.
Capital rationing is
 
 
6.
Characteristics is an investment can be summarized using the
 
 
7.
Depreciation is added back to accounting flows to provide cash flows because depreciation is
 
 
8.
firms ration capital in fear of
 
 
10.
If the NPV for an investment is less than zero, the firm will
 
 
11.
An important investment characteristic required to apply the net present value profile is
 
 
13.
In a non-mutually exclusive investment decision the firm will choose the investments that have the highest
 
 
14.
The internal rate of return measures the
 
 
15.
An investment can perform better than another at low discount rates and perform poorly to the other at high discount rates due to the
 
 
16.
IRR method
 
 
18.
The MIRR is the discount rate that will equate the present value of inflows, each growing at the cost of capital, with the investment
 
 
19.
The need to use external sources of financing for investment projects may lead to__________ rationing
 
 
20.
The net present profile is a way to __________ portray the net present value of a project at different discount rates
 
 
23.
The net present value method requires that all inflows provide a return that is equal to the
 
 
24.
NPV method
 
 
25.
Payback method
 
 
26.
The payback method computes the time required to recoup the initial investment
 
 
28.
The payback method may be of particular interest to firms in industries characterized by
 
 
29.
The reinvestment assumption of the internal rate of return assumes that all inflows can be reinvested at the
 
 
31.
A replacement decision can be made using either a total analysis or an________ analysis
 
 
33.
Under capital rationing, acceptable projects must be ranked and only those with the highest _______ will be chosen
 
 
36.
What are the steps required in the decision making process of a good capital budgeting program
 
 
37.
When using the payback method, inflows after the cut off period
 
 
39.
Which methods used to evaluate capital expenditures is more acceptable and should be applied to most situations?
 
 
40.
Which method used to evaluate capital expenditures is not a conceptually sound method