IMAG0776

17. ifa project is expcctcd to increase invcntory by $15*000, increase accounts payable by $10,000, and decrease accounts rcceivable by $ 1,000, what effcct docs working Capital have during the life of the project?

(Ti^lncreases investment by $4,000.

b.    Increascs invcstment by $5,000.

c.    Increascs investment by $6,000.

d.    Working Capital has no effect during the life of the project

18.    In what manner does depreciation cost affect investment projects?

A. It reduces cash flows by the amount of the depreciation cost. b. It increases cash flows by the amount of the depreciation cost.

reduces taxable iricome by the amount of the depreciation cost. d. It reduces taxes by the amount of the depreciation cost

19. What is the amount of the operating cash flow for a firm with $500,000 profit before tax, $ 100,0^0 depreciation cost and a 35% marginal tax ratę?

a* ^260,000

b. $325,000    f

* &1360,000

Qmmo

20.    When a depreciable asset is ultimately sold, the sales price is:

a.    fully taxable.

. •*'<**

b.    non-taxable.

c.    not taxable only if accelerated depreciation was used.

' d. taxable if sales price exceeds book value.

21. Decide, on thcBasis ofthe NPV nile (optionally IRR) if an investment in a ncw product is effective. Assumptions arc as follows:

a.    the amount ofthe investment in ftxed assets for launching the new product is 15000. The investment is entirely madę in 2009, while the product will be produced (and sold) starting from 2010)

b.    the depreciation ratę is 20%.

c.    the fixed assets will be sold at the end of 2014. Its expected salvage value is 3000. The working Capital too will be totally disinvcstcd at the end of that year.

d.    the tax ratę is 20%    <

e.    the required ratę of return is 9%

f.    the new product will have an economic life of only 5 years (2010-2014).

2009	2010	2011	2012	2013	2014
EB1TDA	3.750	3.500	3.700	3.900	4.400
Working Capital	1.280	1.320	1.460	1.560	1.700