1. The CCA formula used in capital budgeting was developed to:
a. Make payback method analysis more accurate
b. Make opportunity cost calculations possible
c. Save time calculating tax saving
d. Calculate terminal values at the end of the project
2. If short term debt is decreasing it is most likely due to:
A. Increases in cash held
B. Lower Accounts payable
C. Lower Accounts receivable
D. Lower gross margins
3. For many capital investment projects, what investment is usually recovered at the end of the project?
a. CCA Tax savings
b. Opportunity costs
c. Sales and marketing expenses
d. Inventory or working capital investment
4. In the capital budgeting payback periods are
a. Always the same for all companies
b. Determined by each company
c. Set by Canadian tax rules
d. Never considered
e. Always generate a good decision
5. What are the main elements of working capital?
a. Inventories, accounts receivable, new plant equipment, and accounts payable
b. Inventories, accounts receivable, cash, long term debt.
c. Equipment, accounts receivable, cash, accounts payable and stock
d. Inventories, accounts receivable, cash , accounts payable and revolving lines
6. In the addition to most capital investment decisions what additional investment
a. Sales and marketing expense
b. Working capital investment
c. Sunk investments
d. Tax lawyers
7. Of the current methods of investment appraisal, which offer the best measure
a. Marginal rate of return
b. Net present value
c. Accounting income
d. Payback period
8. If a business was considering an investment of 350,000 and the Net Present value ($25,000) this would mean that the business should:
a. Take on the project as it is worth the equivalent of $25,000 today
b. Take on the project and expect $25000 less profit than projected
c. Not take on the project as the company will lose its entire investment of $375,000
d. Not take on the project as it does not add value to the company
9. When evaluating investment opportunities for a company using net present value, what is the best discount rate that:
a. The published Royal Bank rate
b. Current interest rates
c. The industry average cost of capital
d. The company's individual cost of capital
10. What does the information that company can complete construction using I millions of its bricks that are in store, he sold today for $0.75 each represent?
a. An additional source of cash flow to be added
b. An irrelevant piece of data
c. A sunk cost that can be ignored
d. An opportunity cost of 75 cents per bricks used
e. A CCA tax saving
11. Two year ago red bricks Ltd. Bought a parcel of land for $200,000 for a new factory. Work was stopped because of a record now that the economy has improved. Red bricks is considering starting the expansion again. Now machines costing $5,000,000 be purchased. In capital budgeting , what does the cost of the land 2 years ago represent if the company has no plan to sell
a. An opportunity cost and must be included
b. A potential CCA tax saving
c. An opportunity cost that will be recovered
d. To be dedicated from the annual cash flows
e. Irrelevant as it is a sunk cost
12. A financing gap refers to:
a. Financing requirements not identified in the pro forma
b. A reserve for bad debt
c. The undisclosed project for which a portion of retains
d. A value added to liabilities to balance the pro forma
13. Which form of the long term financing , if available , is used
a. Retained earnings
b. New debt
c. Issuing common shares
d. Leasing
e. Issuing preferred shares
14. The CCA calculation in capital budgeting is in order:
a. Determine the funds needed to pay back a project
b. Calculate opportunity costs
c. Simplify tax savings calculations on new assets
d. Calculate tax required on profits
15. Which of the following actions represents the best
a. Pay vendors 5 days earlier than before
b. Allow customers 5 days longer to pay
c. Decrease union wages by 3%
d. Raise selling prices by 10%
e. Carry less 5% less inventory
16. In capital budgeting analysis sunk costs refer to:
a. New capital required
b. Money that will be recovered at the end
c. Extra costs that must be included
d. Past spending that must be excluded
e. Future spending that will be needed