Question: CCC Conglomerates is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its
CCC Conglomerates is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $378,000, annual operating costs of $22,000, and a 3-year life. Machine B costs $257,000, has annual operating costs of $43,000, and a 2-year life. The firm currently pays no taxes. Which machine should be purchased and why?
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| A. | Machine A because it will save the company about $21,223 a year |
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| B. | Machine B because it will save the company about $18,667 a year. |
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| C. | Machine A because it will save the company about $15,687 a year |
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| D. | Machine B because it will save the company about $19,315 a year |
Mary's Quilts is considering a project that will require additional inventory of $172,000, increase accounts payable by $77,000 and increase accounts receivables by $11,000. What is the net working capital requirement?
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| A. | $260,000 |
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| B. | $84,000 |
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| C. | $238,000 |
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| D. | $106,000 |
A project will produce an operating cash flow of $11,760 a year for three years. The initial cash outlay for equipment will be $12,900. The net aftertax salvage value of $5,200 will be received at the end of the project. The project requires $1,100 of net working capital that will be fully recovered. What is the net present value of the project if the required rate of return is 11 percent?
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| A. | 12,937 |
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| B. | $19,345 |
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| C. | $26,718 |
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| D. | $16,062 |
A project will increase annual sales by $237,000 and cash expenses by $95,000 for four years. The project has an initial cost of $126,000 for equipment that will be depreciated using MACRS depreciation. The applicable MACRS table values are 0.1429, 0.2449, 0.1749, and 0.1249 for Years 1 to 4, respectively. The company has a marginal tax rate of 21 percent. What is the depreciation tax shield for Year 3?
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| A. | $4,955.77 |
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| B. | $4,627.85 |
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| C. | $8,288.16 |
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| D. | $6,065.53 |
Soft Feet sells customized shoes. Currently, it sells 26,000 pairs of shoes annually an an average price of $93 a pair. The company is considering adding a lower-priced line of shoes that will sell for $32 a pair. Soft Feet estimates it can sell 12,000 pairs of the lower-priced shoes but will sell 1,300 less pairs of the higher-priced shoes by doing so. What is the amount of the sales that should be used when evaluating the addition of the lower-priced shoes?
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| A. | $263,100 |
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| B. | $510,100 |
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| C. | $205,000 |
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| D. | $384,000 |
The cash flows for a project include the:
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| A. | sunk costs, opportunity costs, and erosion costs of the project. |
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| B. | incremental operating cash flow, as well as the capital spending and net working capital requirements. |
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| C. | net income generated by the project plus the annual depreciation expense. |
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| D. | net operating cash flow generated by the project, less both sunk cost and erosion costs. |
MECCS Inc. has sales of $860,000; cost of goods sold of $350,000; general and administrative expenses of $140,000; interest expense of $90,000; and depreciation expense of $110,000. The firm's tax rate is 21 percent. What is the net income?
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| A. | $134,300 |
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| B. | $111,200 |
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| C. | $92,700 |
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| D. | $170,000 |
Tiger Inc. has total sales of $7,500,000; costs (COGS and expenses) of $3,870,000; and depreciation of $1,000,000. The tax rate is 21 percent. The firm does not have any interest expense. What is the operating cash flow?
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| A. | $2,867,700 |
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| B. | $3,077,700 |
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| C. | $2,077,700 |
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| D. | $3,867,700 |
Teddy Sheets had a beginning net fixed assets of $2600 and ending net fixed assets of $3270. Assets valued at $1200 were sold during the year. Depreciation expense for the year was $150. What is the amount of net capital spending?
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| A. | $1,350 |
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| B. | $1,720 |
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| C. | $400 |
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| D. | $820 |
MECCS Inc. has net income of $7,800. The firm pays out 60 percent of the net income to shareholders as dividends. During the year, the company sold $2,600 worth of common stock. What is the net cash flow to stockholders?
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| A. | $7,280 |
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| B. | $520 |
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| C. | $4,280 |
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| D. | $2,080 |
Your client is retiring today with a retirement account value of $2 million. She expects to live exactly 30 years in retirement and wishes to leave $2.5 million as bequest to her descendants. If her retirement account will earn 6 percent per year (compounded monthly), what is the maximum amount she can withdraw each month to achieve her goals?
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| A. | $7,550 |
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| B. | $9,502 |
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| C. | $5,723 |
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| D. | $12,206 |
James just won a prize that will pay him $50,000 a year for 30 years, starting at the end of year 10. What is the current value of this prize if the discount rate is 12 percent, compounded annually?
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| A. | $392,657 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| B. | $92,186 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| C. | $119,307 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| D. | $145,239 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| You are comparing two annuities with equal present values. The applicable discount rate is 8.50 percent, compounded annually. One annuity pays $8,700 on the first day of each year for 20 years. How much does the second annuity pay each year for 20 years if it pays at the end of each year?
You borrow $350,000 to buy a house. The mortgage rate is 4.2 percent and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay?
You are buying a previously owned car today at a price of $9,470. You are paying $800 down in cash and financing the balance for 36 months at 7.8 percent, compounded monthly. What is your monthly payment amount?
Ghanata Oil has a well that will produce an annual cash flow of $236 million next year. The cash flow is expected to increase by 3.5 percent per year indefinitely. What is the well worth today if the discount rate is 15 percent?
A 10-year loan in the amount of $527,000 is to be repaid in equal annual payments. What is the remaining principal balance after the sixth payment if the interest rate is 5 percent, compounded annually?
You are given that the present value of the cash flow shown below is $43,800. Determine the mission cash flow if the discount rate is 11 percent.
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GroundPink Inc. needs $2.7 million to expand its business. To accomplish this, the firm plans to sell 20-year, $1,000 face value zero coupon bonds. The bonds will be priced to yield 6.25 percent with interest compounded semiannually. What is the minimum number of bonds the company must sell? Ignore all cost issues.
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| A. | 9,246 bonds |
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| B. | 7,333 bonds |
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| C. | 11,675 bonds |
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| D. | 5,921 bonds |
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