1. Which of the following will not decrease the present value of the CCA tax shield associated with an investment project?
a. An increase in the discount rate
b. A decrease in the corporate tax rate
c. A decrease in the CCA rate
d. A decrease in the discount rate

2. Which of the following statements is false?
a. CCA recapture occurs when the salvage value is greater than the ending UCC for the asset or asset class.

3. What is the terminal cash flow (ECFn) based on the following information? The release of additional inventory tied up = $2,000; salvage value = $10,000; UCC = $20,000; initial cost (C0) = $35,000; T = 40%. Assume the asset class will remain open.
a. $12,000
b. $16,000
c. $8,000
d. $14,000

4. Which of the following statements is true about sensitivity analysis and scenario analysis?
a. Sensitivity analysis examines the impact of the change of one input at a time.
b. Scenario analysis examines the impact of the change of one input at a time.
c. Sensitivity analysis examines PV changes in response to differing scenarios.
d. Sensitivity analysis usually includes a base-case scenario, a best-case scenario, and a worst-case scenario.

5. Oak Inc. is planning to purchase new, faster printers to replace its existing printers. The capital cost of the new printers = $300,000. The current market price of the old printers = $50,000. The applicable CCA rate (d) = 20%; the tax rate = 40%; and k = 20%. It is estimated that the new printers could last for 15 years. What is the second-year incremental CCA expense?
a. $45,000
b. $54,000
c. $25,000
d. $65,000

6. Which of the following statements is true about replacement decisions?
a. Incremental cash flow is used.
b. Only the cash flow generated from the new machine is considered.
c. The cash flow that would be generated from the old machine is irrelevant.
d. The salvage value of the new machine is irrelevant.

7. Suppose the nominal cash flow is $1,000 in year 1, the nominal discount rate is 5 percent, and the inflation rate is 2 percent. What is the PV of the cash flow?
a. $952.38
b. $970.87
c. $1,000
d. $950

  • CreatedFebruary 25, 2015
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