8/31/2020 Hum 4721 Test 2

Hum 4721 Test 2

MCQ

7. Which of the following is a form of capital as the term is used in 1 point

economics?

Houses owned by individuals

Factories owned by businesses

Money

Education

Clear selection

8. In cases where capital must be rationed, a firm should rank projects 1 point
according to their ....

net present values.

internal rates of return.

profitability indexes.

external rates of return.

Clear selection

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19. A company with a 34% marginal income tax rate is considering an 2 points
investment that is classified as 3-year property in the MACRS depreciation
schedule. The investment has the estimated following benefits: Year 0 to 4
respectively, −$75,000, $10,000, $25,000, $50,000 and $15,000. The
income tax owed in year 3 is approximately:

$13,223

$17,000

$20,000

No income tax is owed

Clear selection

3. Which of the following is an appropriate way to measure cash flows? 1 point

Treat depreciation as a negative cash flow

Consider only incremental costs and revenues

Consider only after-tax cash flows

All of the above are appropriate ways to measure cash flows.

Clear selection

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22. A company B’s total effective income tax rate is 45% and its state 2 points
income tax rate is 18%. What is the company B’s approximate federal
income tax rate?

21%

29%

33%

41%

Clear selection

21. A company with a 34% marginal income tax rate is considering an 2 points
investment that is classified as 3-year property in the MACRS depreciation
schedule. The investment has the estimated following benefits: Year 0 to 4
-$75,000, $10,000, $25,000, $50,000 and $15,000. Based on the
depreciation and the taxable income, the corporation will actually begin
owing taxes in what year?

Year 1

Year 2

Year 3

Year 4

Clear selection

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23. A construction company has $2 million in gross income and has 2 points
operating expenses of $1,200,000 for 2007. Depreciation deductions are
$400,000 for the year. What is the taxable income for this company?

$300,000

$400,000

$1,600,000

$2,000,000

Clear selection

11. Which of the following statements is correct regarding the internal rate 1 point
of return (IRR) method

Each project has a unique internal rate of return.

As long as you are not dealing with mutually exclusive projects, capital rationing, or
unusual projects having multiple sign changes in the cash-flow stream, the internal
rate of return method can be used with reasonable confidence.

The internal rate of return does not consider the time value of money.

The internal rate of return is rarely used by firms today because of the ease at which
net present value is calculated.

Clear selection

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17. If the budgeted revenue is 50,000 and the breakeven revenue is 1 point
35,000, the margin of safety is

85,000

15,000

50,000

35,000

Clear selection

12. A project whose acceptance requires the acceptance of one or more 1 point

alternative projects is referred to as __________.

a mutually exclusive project

an independent project

a dependent project

None of the above

Clear selection

14. A situation in which a decision maker knows all of the possible 1 point

outcomes of a decision and also knows the probability associated with

each outcome is referred to as

certainty.

risk.

uncertainty.

probability

Clear selection

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18. A state has a corporate tax rate of 8.75% of taxable income. If a 2 points

corporation has a state taxable income of $525,000, what is the

approximate total state and federal income tax that it must pay?

$45,938

$113,000

$161,981

$178,500

Clear selection

4. Out of the following, which of the capital receipt is not taxable: 1 point

Capital gains of Tk. 10,00,000

Amount of Tk.5,00,000 won by way of lottery, games, puzzles

Amount of Tk. 2,00,000 received by way of gift from relatives

Amount of Tk.1,00,000 received by way of gift from a friend on marriage anniversary

Clear selection

2. Income Tax is charged in – 1 point

Financial Year

Assessment Year

Previous Year

Accounting Year

Clear selection

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1. All of the following are not calculated as part of taxable income for a 1 point
business except…

Depreciation on a piece of equipment

Cost of labor

Gross income

Rent

Clear selection

10. Pick up the correct statement from the following: 1 point

The capital required to get a project started is the first cost

The first cost is a single cash flow or a series of cash flows that are made in the
beginning of the activity's life span

The first cost of purchasing a car is the sum of the down payment, taxes and dealers
charges

All of these

Clear selection

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25. You must decide between two mutually exclusive projects. Project A 2 points

has cash flows of -$10,000; $5,000; $5,000; and $5,000; for years 0
through 3, respectively. Project B has cash flows of -$20,000; $10,000;
$10,000; and $10,000; for years 0 through 3, respectively. The firm has
decided to assume that the appropriate cost of capital is 10% for both
projects. Which project should be chosen? Why?

Project A's NPV > Project B's NPV.

Makes no difference which you choose because the IRR for A is identical to the IRR
for B and both IRRs are greater than 10 percent, the cost of capital.

Project B's NPV > Project A's NPV.

Neither A nor B; The NPVs of both projects are negative.

Clear selection

13. The analysis of a complex decision situation by constructing a 1 point

mathematical model of the situation and then performing a large number
of iterations in order to determine the probability distribution of outcomes
is called ...

sensitivity analysis.

expected utility analysis.

a decision tree

simulation.

Clear selection

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24. A project has the following cash inflows $34,444; $39,877; $25,000; and 1 point
$52,800 for years 1 through 4, respectively. The initial cash outflow is
$104,000. Which of the following four statements is correct concerning
the project internal rate of return (IRR)?

The IRR is less than 10%.

The IRR is greater than or equal to 10%, but less than 14%

The IRR is greater than or equal to 14%, but less than 18%.

The IRR is greater than or equal to 18%.

Clear selection

16. The amount of money by which the total revenue exceeds the 1 point
breakeven revenues is called as

Margin of safety

Margin of loss

Margin of profit

Margin of income

Clear selection

9. Present worth Annuity (PWA) is generally known as 1 point

Premium annuities

Income annuities

Future annuities

All of these

Clear selection

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6. The net present value method and the internal rate of return method will 1 point

always yield the same decision when

mutually exclusive projects are evaluated.

a single project is evaluated.

a limited number of projects must be selected from a large number of opportunities.

All of the above are correct.

Clear selection

5. The net present value of a project is equal to 1 point

the present value of all net cash flows that result from the project.

the present value of all revenues minus the present value of all costs that result from
the project.

the present value of all future net cash flows that result from the project minus the
initial investment required to start the project.

All of the above are correct.

Clear selection

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20. A company with a 34 percent marginal income tax rate is considering 2 points
an investment that is classified as 3-year property in the MACRS
depreciation schedule. The investment has the estimated following costs
and benefits: Year 0 to 4, -$75,000, $10,000, $25,000, $50,000 and
$15,000. What is the estimated annual after-tax cash flow for year 4?

$11,789.55

$15,099.15

Option 3

None of them.

Clear selection

15. Model for management to conduct sensitivity analysis is classified as 1 point

Investment planning model

Financial planning model

Cost planning model

Revenue forecast model

Clear selection

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