Question

35.      In making long-term decisions about investing and financing, a firm should do which of the following?

a.	decide whether to make the investment, then decide how to raise the funds required for the investment.
b.	decide how to raise the funds required for the investment, then decide whether to make the investment.
c.	decide how to raise the funds required for the investment at the same time as deciding whether to make the investment.
d.	None of the above.

36.      A not-for-profit company purchased an asset at a cost of $60,000. Annual operating cash flows are expected to be $20,000 each year for 4 years. At the end of the asset life, there will be no residual (salvage) value. Ignore income taxes. What is the net present value if the cost of capital is 10 percent?

a.	$(1,960.)
b.	$3,397.
c.	$12,400.
d.	$23,400.

37.      Which of the following is a likely errors in the calculation of net present value?

a.	the amount of cash flows
b.	the timing of cash flows
c.	the discount rate.
d.	all of the above

        

38.      Which statement is trueconcerning depreciation?

a.	Depreciation does not affect taxable income.
b.	Depreciation should be considered in the cash flow analysis.
c.	Depreciation is never relevant for decision making.
d.	Depreciation is never affected by income tax laws.

39.      Which of the following is a useful feature of spreadsheet programs?

a.	Spreadsheet programs reduce the errors in predicting the amounts of future cash flows.
b.	Spreadsheet programs reduce the errors in predicting the timing of future cash flows.
c.	Spreadsheet programs reduce the errors in predicting the discount rate.
d.	Spreadsheet programs help the user see the effect on the net present value of changes in assumptions and estimates.

           

40.      Which of the following is the discount rate that equates the net present value of a series of cash flows to zero?

a.	investment rate of return.
b.	external rate of return.
c.	internal rate of return.
d.	international rate of return.

Answer 1

　

35) Solution: decide whether to make the investment, and then decide how to raise the funds required for the investment

Explanation: While consideration of the long-term decisions about investments and finances a firm must first decide whether to make the investment, and then raising the funds needed for the investment

36) Solution: $3,397

Working: NPV = 20,000/(1+0.1)^1 + 20,000/(1+0.1)^2 + 20,000/(1+0.1)^3 + 20,000/(1+0.1)^4 - 60,000 = = 3,397

37) Solution: timing of cash flows

Explanation: The timing of cash flows is a likely errors in the calculation of NPV

38) Solution: Depreciation should be considered in the cash flow analysis

Explanation: For the estimation of the cash flow from operations depreciation need to be added

39) Solution: Spreadsheet programs help the user see the effect on the net present value of changes in assumptions and estimates

Explanation: Spreadsheet programs needs user to know the impact on the net present value of changes in estimates and assumptions

40) Solution: internal rate of return

Explanation: The internal rate of return is the rate of discount that equates the NPV of a series of cash flows to zero.