Cash Flows Mcqs

Cash Flows Mcqs Student Help 1. A project that provides annual cash flows of $12,600 for 12 years costs $67,150 today. At what rate would you be indifferent between accepting the project and rejecting it?
A. 15.28 percent
B. 15.40 percent
C. 15.51 percent
D. 15.62 percent
E. 15.74 percent
2. What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? Year 1: 12,500, Year 2: 19,700, Year 3: 0 and Year 4: 10,400. The required return is 15.35 percent.
A. -$3,383.25
B. -$2,784.62
C. -$2,481.53
D. $52,311.08
E. $66,416.75
3. The internal rate of return is:
A. more reliable as a decision making tool than net present value whenever you are considering mutually exclusive projects.
B. equivalent to the discount rate that makes the net present value equal to one.
C. difficult to compute without the use of either a financial calculator or a computer.
D. dependent upon the interest rates offered in the marketplace.
E. a better methodology than net present value when dealing with unconventional cash flows.
4. All else constant, the net present value of a typical investment project increases when:
A. the discount rate increases.
B. each cash inflow is delayed by one year.
C. the initial cost of a project increases.
D. the rate of return decreases.
E. all cash inflows occur during the last year of a project’s life instead of periodically throughout the life of the project.
5. The difference between the present value of an investment and its cost is the:
A. net present value.
B. internal rate of return.
C. payback period.
D. profitability index.
E. discounted payback period.
6. Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. What is the appropriate discount rate for valuing the lease?

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A. 2.72%
B. 5.28%
C. 8.00%
D. 12.12%
E. None of the above.
7. Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. What is the after-tax cash flow from leasing in year 0?
A. $300,000
B. $495,000
C. $852,000
D. $948,000
E. None of the above
8. Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. What is the after-tax cash flow in years 1 through 5?
A. $-126,600
B. $-198,000
C. $-269,400
D. $-287,250
E. None of the above
9. Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. What is the NPV of the lease?
A. $-111,690
B. $-295,040
C. $-305,388
D. $-309,690
E. None of the above
10. Which of the following decreases cash?
A. an increase in current assets other than cash.
B. a decrease in fixed assets.
C. an increase in current liabilities.
D. A and C.
E. None of the above
11. Costs of the firm that rise with increased levels of investment in its current assets are called _____ costs.
A. carrying
B. shortage
C. order
D. safety
E. trading
12. The forecast of cash receipts and disbursements for the next planning period is called a:
A. pro forma income statement.
B. statement of cash flows.
C. cash budget.
D. receivables analysis.
E. credit analysis.
13. A prearranged, short-term bank loan made on a formal or informal basis, and typically reviewed for renewal annually, is called a:
A. letter of credit.
B. cleanup loan.
C. compensating balance.
D. line of credit.
E. roll-over.
14. A _____ issued by a bank is a promise by that bank to make a loan if certain conditions are met.
A. compensating balance
B. cleanup loan
C. letter of credit
D. line credit
E. revolver
15. If you delay paying your suppliers by an additional ten days, then:
A. your payables turnover rate will increase.
B. you will require less bank financing of your operations.
C. the cash cycle will increase by ten days.
D. your operating cycle will lengthen by ten days.
E. your stock-out costs will rise.

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