Poon's Noodle House is considering replacing their noodle-processing machine. The current machine was purchased 4 years ago at a total cost of 20,000. It is being depreciated straight-line to a zero value over 8 years.
If Poon sells the noodle-processing machine for 13,000, what is the after-tax cash flow to Poon's Noodle House? Use 40 for the effective tax rate.
A) 11,800
B) 7,800
C) 11,200
D) 5,200
Tokyo Food Supplies Corporation is considering an expansion to a new market. Tokyo Food Supplies has already conducted and paid 35,000 for a marketing survey.
The expansion will cost 400,000 for new assets, another 25,000 for shipping and delivery costs, and another 70,000 for installation costs. In addition, 150,000 in net working capital will be needed immediately. Compute the net investment.
A) 495,000
B) 680,000
C) 645,000
D) 550,000
Why do a project's net cash flows not include additional interest expense?
A) Interest expense is a sunk cost and thus not relevant.
B) Interest expense is not an actual cash expense.
C) Interest expense is an indirect cost and thus not relevant.
D) Interest expense is taken into account by the use of a required rate of return used in the decision method.
Which one of the following is not a basic principle for estimating a project's net cash flows?
A) Sunk costs are relevant.
B) Cash flows should be estimated on an incremental basis.
C) Cash flows should be estimated on an after-tax basis.
D) Opportunity costs are relevant.
Which one of the following is not part of a project's estimated net cash flows?
A) the expected loss in your firm's other businesses due to a new project
B) the cost of a customer survey performed one year before the project decision is made
C) the change in depreciation
D) the change in cash operating costs
What is net working capital?
A) current liabilities minus current assets
B) current assets minus net fixed assets
C) current assets minus current liabilities
D) net fixed assets minus long-term liabilities
Which one of the following is not part of the estimated net investment for a capital budgeting project?
A) the estimated salvage value of the new assets at the end of their 10-year expected economic life
B) the immediate increase in net working capital required by the project
C) the after-tax salvage value of assets to be replaced by the project
D) the cost of new assets required by the project
Which one of the following would not typically be considered a capital budgeting project for a restaurant?
A) renovating the ladies' restroom
B) installing a new fire suppression and alarm system
C) buying a new dishwashing system
D) buying toilet paper for both the ladies' and men's restrooms
What impact will an increase in depreciation have upon a firm?
A) decrease profit and decrease cash flow
B) decrease profit and increase cash flow
C) increase profit and decrease cash flow
D) increase profit and increase cash flow
Which of the following is a basic principle when estimating a project's cash flows?
A) Cash flows should be measured on a pretax basis.
B) Cash flows should ignore depreciation because it is a non-cash charge.
C) Only direct effects of a project should be included in cash flow calculations.
D) Cash flows should be measured on an incremental basis.
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