8.

A payback period that is less than the required period signals an accept decision.

True

False

9.

The payback calculation takes the time value of money into account.

True

False

10.

A company is considering a new four-year project with an initial investment requirement of $72,001. The equipment belongs in a 30% CCA class and will be worthless at the end of the project. Sales are estimated at $136,800 with costs of $87,901. The tax rate is 34%. What is the project OCF in the second year?

A. $41,406

B. 30,900

C. 20,394

D. 38,516

E. 28,506
 

Transcribed Image Text:

QUESTION 4 Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assume the required return is 17%. What is the project's IRR? Should it be accepted? 12.2%; yes 16.3%; no 12.2%; no 17.0%; indifferent 16.3%; yes QUESTION 5 Deciding which product markets to enter is a capital budgeting decision. True False QUESTION 6 For the purpose of performing capital budgeting analysis, cash flows must be after-tax. True False QUESTION 7 IRR uses an arbitrary cutoff number in its decision rule. True False QUESTION 4 Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assume the required return is 17%. What is the project's IRR? Should it be accepted? 12.2%; yes 16.3%; no 12.2%; no 17.0%; indifferent 16.3%; yes QUESTION 5 Deciding which product markets to enter is a capital budgeting decision. True False QUESTION 6 For the purpose of performing capital budgeting analysis, cash flows must be after-tax. True False QUESTION 7 IRR uses an arbitrary cutoff number in its decision rule. True False

Answer rating: 100% (QA)

4 163 no 5 True 6 True 7 False 8 False 9 False 10 D EXPLANATIONS 4 The projects IRR is 163 Since thi... View the full answer