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1. The capital budgeting manager for XYZ Corporation, a very profitable high technology company, completed her analysis of Project A assuming 5 year depreciation. He accountant reviews the analysis and change the depreciation method to 3 year depreciation. This change will, ________ (Points :1), Increase the present value of the net cash flow , Decrease the present value of the net cash flow , Have no effect on the net cash flow because depreciation is a non cash expense , Only change the net cash flows if the useful life of the depreciable asset is greater than five years. ,,,2. A capital budgeting project has a net present value of \$10,000 and a modified internal rate of return of 13%. The project’s required rate of return is 11 %. The internal rate of return is ______ (Points :1), Greater than 13 % , Less than 11 % , Between 11% and 13% , Less than \$10,000 ,,,3. Zellar’s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs ,\$ 75,000 and is expected to generate \$48,000 in year one and \$45,000 in year two. Project B costs \$80,000 and is expected to generate \$34,000 on year one, \$37,000 in year two, \$26,000 in year three, and \$25,000 in year four. Zellar, Inc.’s required rate of return for these projects is 10%. The profitability index for Project A is ________ (Points :1), 1.47 , 1.22 , 1.13 , 1.08 ,,,4. Zellar’s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs,\$ 75,000 and is expected to generate \$48,000 in year one and \$45,000 in year two. Project B costs \$80,000 and is expected to generate \$34,000 on year one, \$37,000 in year two, \$26,000 in year three, and \$25,000 in year four. Zellar, Inc.’s required rate of return for these projects is 10%. The internal rate of return for Project A is ________ (Points :1), 11.43% , 13.87% , 15.81% , 17.45% ,,,5. Zellar’s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs \$ 75,000 and is expected to generate \$48,000 in year one and \$45,000 in year two. Project B costs \$80,000 and is expected to generate \$34,000 on year one, \$37,000 in year two, \$26,000 in year three, and \$25,000 in year four. Zellar, Inc.’s required rate of return for these projects is 10%. The internal rate of return for Project B is ________ (Points :1), 26.74% , 20.79% , 18.64% , 16.77% ,,,6. Your company is considering a replacement of an old delivery van with a new one that is more efficient. The old van cost \$30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold today for \$5,000. The new van has an invoice price of \$75,000, and it will cost \$5,000 to modify the van to carry the company’s products. Cost savings from use of the new van are expected to be \$ 22,000 per year for 5 years. At which time the van will be sold for its estimated salvage value of \$15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company’s statutory rate is 35%. Working capital is expected to increase by \$3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the tax effect of selling the old machine? (Points :1), A savings of \$1,750 , A savings of \$3,500 , Additional taxes paid of \$1,750 , A tax savings of \$1,200 ,,,7. J.B. Enterprises purchased a new molding machine for \$75,000. The company paid \$6,000 for shipping and another \$ 4,000 to get the machine integrated with the company’s existing assets. J.B. Must maintain a supply of special lubricating oil just in case the machine breaks down. The company purchased a supply of oil for \$2,000. The machine is to be depreciated on a straight line basis over its expected useful life of 10 years. What will depreciation expense be during the first year? (Points :1), \$7,500 , \$8,100 , \$8,500 , \$8,700 ,,,8. Nickel Industries is considering the purchase of a new machine that will cost \$178,000, plus an additional \$12,000 to ship and install. The new machine will have a 5 year useful life and will be depreciated using the straight line method. The machine is expected to generate new sales of \$85,000 per year and is expected to increase operating costs by \$ 10,000 annually. Nickel’s income tax rate is 40%. What is the projected incremental cash flow of the machine or year 1? (Points :1), \$54,800 , \$60,200 , \$66,350 , \$68,200 ,,,9. Jiffy Wax Corp. Can sell common stock for \$15 per share and its investors require a 14 % return. However, the administrative or flotation costs associated with selling the stock amount to \$2.40 per share. What is the cost of capital for Jiffy Wax if the corporation raises money by selling preferred stock? (Points :1), 30.00% , 21.50% , 16.67% , 14.00% ,,,10. The risk free rate of return is 3% and the market risk premium is 12%. Penn Trucking has a beta of 1.8 an a standard deviation of returns of 24 %. Penn Trucking’s marginal tax rate is 40%. Analyst expect Penn Trucking’s dividends to grow by 5% per year for the foreseeable future. Using the capital asset pricing model, what is Penn Trucking’s cost of retained earnings? (Points :1), 17.4% , 19.2% , 24.6% , 27.0% ,,