FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 11: Cash Flows and Capital Budgeting

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

Marginal and average tax rates: Use the tax rate taken from Exhibit 11.6 to calculate the total taxes paid for Lansing, Inc., this year. Lansing's pretax income was $275,000. Exhibit 11.6 U.S. Corporate Tax Rate Schedule in 2007 Taxable Income More Than But Not More Than Tax Owed $0 $50,000 15% of amount beyond $0 $50,000 $75,000 $7,500 + 25% of amount beyond $50,000 $75,000 $100,000 $13,750 + 34% of amount beyond $75,000 $100,000 $335,000 $22,250 + 39% of amount beyond $100,000 $335,000 $10,000,000 $113,900 + 34% of amount beyond $335,000 $10,000,000 $15,000,000 $3,400,000 + 35% of amount beyond $10,000,000 $15,000,000 $18,333,333 $5,150,000 + 38% of amount beyond $15,000,000 $18,333,333 ------- 35% on all income

A) $22,500
B) $68,250
C) $90,750
D) $107,250

E) C) and D)
F) All of the above

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

Free cash flow: What is Provo's NOPAT for 2008?

A) $2,400,000
B) $2,600,000
C) $3,400,000
D) $4,000,000

E) A) and B)
F) All of the above

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

For a U.S. corporation with income above $20 million,

When compared to the straight-line depreciation method, MACRS has

Average versus Marginal Tax Rate: Suppose Franklin Corporation had pre-tax income of $300,000 in 2010 and that the firm would have paid $100,250.00 in federal income taxes. What is Franklin's average income tax rate? (Round off to the nearest 0.1%)

Which of the following statements is true?

Free cash flow: What is Champagne's free cash flow for 2008?

Accounting earnings are a reliable measure of the costs and benefits of a project.

Allocated costs such as corporate overhead should be included in cash flow calculations.

When is the appropriate time to harvest an asset?

A progressive tax system means that a taxpayer will pay a higher tax rate for a given dollar of earnings for every successive year.

Windy Burgers is trying to determine when to harvest a herd of cows that it currently owns. If it harvests the herd in year 1, the NPV of the project would increase over an immediate harvest by 25 percent. A year 2 harvest would create an NPV increase of 15 percent over that of year 1 and year 3 would create an NPV increase of 7 percent over that of year 2. If the cost of capital is 12 percent for Windy, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

Briefly explain the two methods of comparing projects with different useful lives.

The impact of a project on another project's cash flows should be ignored.

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

Expected cash flows: FireRock Wheel Corp is evaluating a project in which there is a 40 percent probability of revenues totaling $3 million and a 60 percent probability of revenues totaling $1 million per year. If cash expenses will be $1.0 million while depreciation expense will be $200,000, then what is the expected free cash flow from taking the project if the marginal tax rate for the firm is 30 percent?

Computing the terminal-year FCF: Babaloo Nightclubs. purchased a disco mirror that currently has a book value of $10,000. If Babaloo sells the disco mirror for $500 today, then what is the amount of cash that it will net after taxes if the firm is subject to a 39 percent marginal tax rate?

Incremental cash flow from operations is the cash flow from a project that is expected to be generated after all operating expenses and taxes have been paid.

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted.

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.