51) What is the net present value of the tax savings from depreciation?

A) $3,912

B) $23,881

C) $10,235

D) $1,677

52) What is the total net present value of the investment?

A) $69,941

B) $24,941

C) $42,000

D) $(33,545)

53) A company is considering the purchase of some equipment that in the second year of operation should cause an increase in sales of $200,000, an increase in cash expenses of $120,000, and a depreciation deduction of $60,000. If the appropriate tax rate is 40 percent, what will be the after-tax effect of this equipment on cash flows in year two?

A) No effect

B) Net after-tax cash inflows will be $72,000.

C) Net after-tax cash inflows will be $12,000.

D) Net after-tax cash inflows will be $20,000.

54) The cash inflow effect of a disposal at a loss is equal to the

A) amount of the loss plus the tax savings.

B) amount of the loss minus the tax savings.

C) selling price plus the tax savings.

D) selling price minus the tax savings.

55) In making capital-budgeting decisions, it is relevant to consider

A) future data that will differ among competing alternatives.

B) the cash outflows caused by future depreciation deductions.

C) the book value of equipment.

D) the original cost of currently owned equipment.

56) Inflation is

A) not a factor in most capital-budgeting decisions because it tends to be very low in Canada.

B) equal to the amount of interest (or nominal rate) charged for most loans.

C) the increase in the general purchasing power of the monetary unit.

D) the decrease in the general purchasing power of the monetary unit.

57) When making capital-budgeting decisions, the effects of inflation

A) should be ignored since it is impossible to know what future inflation rates will be.

B) are important, but it is impossible to estimate their effects on capital-budgeting decisions.

C) act to reduce the minimum desired rate of return on projects.

D) act to increase the minimum desired rate of return on projects.

58) Another term for market interest rate is

A) risk-free interest rate.

B) real rate.

C) nominal rate.

D) marginal rate.

59) Which of the following is NOT usually considered when a company establishes its minimum desired rate of return?

A) A risk-free element of interest

B) A business-risk element

C) An inflation element

D) A political-risk element

60) The “inflation element” refers to the

A) future increase in the general purchasing power of the monetary unit.

B) future deterioration of the general purchasing power of the monetary unit.

C) impact that future price increases will have on the original cost of a piece of equipment.

D) fact that the real purchasing power of a monetary unit usually increases over time.



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