Question 1
ABC Company has the following projections for Year 1 of a capital budgeting project.

Year 1 Incremental Projections:

Sales                                              \$937,675

Variable Costs                               \$50,385

Fixed Costs                                   \$55,644

Depreciation Expense                   \$118,965

Tax Rate                                        35%

Calculate the operating cash flow for Year 1.
Question 2
ABC has a proposed project which will generate sales of 120 units at a selling price of \$227 each. The fixed costs are \$12,967 and the variable costs per unit are \$36. The project requires \$160,912 of machinery which will be depreciated on a straight-line basis over the 5-year life of the project. The tax rate is 36%. What is the operating cash flow for year 5?
Question 3
Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal?
Interest expense related to financing a project
All of the above should be considered
Equipment Cost
Increase in net working capital requirements
Cost of Installing new equipment
Question 4
ABC Company purchased some new equipment 2 years ago for \$229,472. Today, it is selling this equipment for \$48,486. What is the aftertax cash flow from this sale if the tax rate is 29 percent? The MACRS allowance percentages are as follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
Question 5
A project requires \$347,241 of equipment that is classified as 7-year property. What is the book value of this asset at the end of year 5 given the following MACRS depreciation allowances, starting with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?

Question 6
A project requires \$320,027 of equipment that is classified as 7-year property. What is the depreciation expense in year 3 given the following MACRS depreciation allowances, starting with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?

Question 7
ABC Company purchased \$24,914 of equipment 5 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for \$8,758. What is the aftertax cash flow from this sale if the tax rate is 33 percent? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.
Question 8
ABC Inc. has estimated the following revenues and expenses related phase I of a proposed new housing development? Incremental sales= \$6,398,220, total cash expenses \$2,659,171, depreciation \$605,913, taxes 26%, interest expense, \$200,000. What are the operating cash flows?
Question 9
ABC Company purchased \$17,686 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for \$7,719. What is the aftertax cash flow from this sale if the tax rate is 33 percent? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

Question 10
A project has an annual operating cash flow of \$18,887. Initially, this 4-year project required \$4,051 in net working capital, which is recoverable when the project ends. The firm also spent \$10,000 on equipment to start the project. This equipment will have a book value of \$3,524 at the end of year 4. What is the total cash flow for year 4 of the project if the equipment can be sold for \$5,890 and the tax rate is 35%?

Question 11
ABC Corporation is considering an expansion project. The necessary equipment could be purchased for \$27,231 and shipping and installation costs are another \$1,771. The project will also require an initial \$7,987 investment in net working capital. The company's tax rate is 40%. What is the project's initial investment outlay?
Question 12
ABC Company has a proposed project that will generate sales of 214 units annually at a selling price of \$272 each. The fixed costs are \$5,441 and the variable costs per unit are \$99. The project requires \$32,666 of equipment that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is \$6,900 and the tax rate is 36 percent. What is the operating cash flow for year four?

Question 13
The net working capital invested in a project is generally:
recovered at the start of the project.
depreciated to a zero balance over the life of the project.
an opportunity cost.
recovered at the end of the project.
a sunk cost.
Question 14
A project requires \$264,894 of equipment that is classified as 7-year property. What is the book value of this asset at the end of year 3 given the following MACRS depreciation allowances, starting with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?

Question 15
ABC Inc. has estimated the following revenues and expenses related phase I of a proposed new housing development? Incremental sales= \$519,458, total cash expenses \$277,947, depreciation \$48,206, taxes 39%. What are the operating cash flows?
Question 16
A project has an initial requirement of \$182,625 for new equipment and \$14,822 for net working capital. The installation costs to get the new equipment in working condition are 6,659. The fixed assets will be depreciated to a zero book value over the 4-year life of the project and have an estimated salvage value of \$140,298. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is \$112,088 and the cost of capital is 10% What is the project's NPV if the tax rate is 37%?
Question 17
Sunk costs are a type of incremental cash flow that should be included in all capital-budgeting decisions.
True
False
Question 18
A project has an initial requirement of \$219,794 for new equipment and \$12,215 for net working capital. The fixed assets will be depreciated to a zero book value over the 3-year life of the project and have an estimated salvage value of \$76,846. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is \$99,723 and the cost of capital is 14% What is the project's NPV if the tax rate is 34%?