(1) Suppose you have an investment that pays $75 at the end of the year for each of the next five If

(1) Suppose you have an investment that pays $75 at the end
of the year for each of the next five If your opportunity cost of money is
12%, how much is the investment worth?

A) $27036

B) $37500

C) $13218

D) $25071

(2) In computing the terminal value on a piece of equipment
that will be disposed of in 5 years, which of the following WOULD NOT be
considered in the analysis?

A) the net tax effect on losing the depreciation of the
equipment from the disposal point on

B) anticipated salvage value

C) costs to be incurred in removing the equipment when it is
disposed of

D) working capital that would be freed up by the termination
of use of the equipment

(3) A project showing a positive NPV may actually turn out
to be unprofitable Which of the following WOULD NOT be listed as a probable
cause of this happening?

A) inflation rates were overestimated

B) future sales were underestimated

C) the nature bias toward choosing projects with
overestimated cash flows

D) lack of consistency in how inflation rates were
forecasted within the project

(4) Anchor Corporation is considering the purchase of a new
machine that will boost sales by $50,000 a year, reduce costs by $60,000 per
year and increase taxes by $8,000 a year What’s the annual after-tax cash flow
associated with the new machine?

A) $18,000

B) -$18,000

C) $102,000

D) $118,000

(5) Incremental cash flows from proposed projects can be
very difficult to pinpoint in a large company engaging in international trade
When analyzing capital budgeting, such a company should:

A) focus attention on those cash flows that are easiest to
pin down – those for the project alone

B) calculate the NPV using higher discount rates than normal
since there tends to be more uncertainty in foreign projects

C) project cash flows for the firm as a whole for analysis
purposes

D) ignore cross cash flow effects, particularly if they
occur in foreign operations