Question 1

The manager at Home Manufacturing Center needs to compute the effect of cash operating flows on the net income tax after the investment of a new home repair and design machine.The operating cost inflows from investment in the machine equal $150,000 with a 40% tax rate that resulted in $60,000 income taxes,excluding the effect of depreciation.
Required
Compute the after-tax cash flow from operations.What is the company's net income tax and cash flow from operations if the manager claims an additional deprecation deduction of $50,000 at the 40% tax rate?

Accepted Answer

E)[(0.40 × $150,000)] = $60,000;[($150,000 - $60,000)] = $90,000
[(.40 × $50,000)] = $20,000;[($90,000 + $20,000)] = $110,000

Question 2

The manager at Harrison's Paper Service needs to assess the net increase in income the company should experience after the investment in a new machine.The operating cash inflows from the investment of $185,000,with an additional depreciation deduction of $111,000.The company is taxed at 40%.
Required
Compute the increase in net income.

Accepted Answer

C)[($185,000 - $111,000)] = $74,000
[(0.40 × $74,000)] = $29,600
[($74,000 - $29,600)] = $44,400

Question 3

Which of the following is true about net initial investments?

Accepted Answer

Net initial investments refer to the cash outflows that occur at the beginning of a project's life, which may include purchasing land, building construction, equipment, and other upfront costs necessary to start the project. Therefore, option D is the correct answer. Choices A, B, and E are not comprehensive enough to cover all the components of net initial investments. Option C is also incorrect because cash outflows occur at the beginning of the project, not the end.

Question 4

Gains or losses on the sale of depreciable assets can be taxed at the same rate as ordinary income.

Accepted Answer

Gains or losses on the sale of depreciable assets are considered ordinary income or loss and are subject to taxation at the same rate as other forms of income.

Question 5

Which of the following is not an example of an asset related to initial working-capital investments?

Accepted Answer

A current liability is not an asset, but rather an obligation or debt that must be paid. The other options are all examples of initial working-capital investments, as they represent resources or funds that a company uses to operate its business.

Question 6

In which stage of the capital budgeting process begins the choice to manage the project?

Accepted Answer

The choice to manage the project begins in Stage 5, where the decision is implemented, performance is evaluated, and learning occurs.

Question 7

What do managers need to consider about the after-tax cash flow from the current disposal of an old machine?

Accepted Answer

The answer of What do managers need to consider about...

Question 8

The Meredith Organization has an annual cash inflow from operations from its investment in a capital asset of $25,000 each for five years.The corporation's income tax rate is 25%.
Required
Compute the five years total after-tax cash inflow from operations.

Accepted Answer

D)[($25,000 × 5 = $125,000 × (1 - 0.25)= $93,750 net cash flow

Question 9

The Hopewell Factory disposes a capital asset with an original cost of $195,000 and accumulated depreciation of $115,000 for $55,000.The managerial accountant has a tax rate of 40%.
Required
Compute the after-tax cash inflow from the disposal of the capital asset (include proceeds).

Accepted Answer

D)[($195,000 - $115,000)= $80,000 - $55,000 = $25,000 loss × .40 = $10,000 tax savings from loss plus $55,000 proceeds = $65,000.

Question 10

Initial investments in plant and equipment are usually accompanied by additional investments in working capital.

Accepted Answer

Initial investments in plant and equipment often require additional investments in working capital to support the production and sale of the product. This includes inventory, accounts receivable, and cash reserves needed for day-to-day operations.

Question 11

Depreciation costs directly affect cash flows because depreciation is a cash cost.

Accepted Answer

Depreciation costs do not directly affect cash flows because depreciation is not considered a cash cost.

Question 12

What is the impact on taxes when the manager sells an asset at a loss?

Accepted Answer

The answer of What is the impact on taxes when...

Question 13

The manager at the Alexandria Environmental Services reported $14,250 as the current disposal value of an old machine.The loss on the disposal of the old machine is $50,000.The tax rate is 42%.The managerial accountant provided the following information:
Alexandria Environmental Service
  
Required
Compute the tax savings on the loss and the after tax inflow from current disposal of the old machine.Show all work.

Accepted Answer

The answer of The manager at the Alexandria Environmental Services...

Question 14

The manager at the Chesapeake Bay Crab House reported a current disposal value of an old fish processing machine at $8,200.The current book value on the old machine is $43,500.
Required
Compute the loss on disposal of the old machine.

Accepted Answer

E)[($8,200 - $43,500)] = ($35,300)

Question 15

In performance evaluations,it is important for managers to ensure that the method of evaluation does not conflict with the ________ method for making capital-budgeting decisions.

Accepted Answer

The Net Present Value (NPV) method for making capital-budgeting decisions focuses on the present value of cash flows. It's important for performance evaluations to align with this method to ensure that the evaluations reflect the impact of decisions on the company's value accurately. Other methods like IRR, AARR, or variations thereof, focus on different aspects of investment performance that might not directly correlate with how capital budgeting decisions affect company value in the same way NPV does.

Question 16

Which of the following is true about initial working-capital investment?

Accepted Answer

Initial investments in plant and equipment typically require additional investments in working capital to operate the business, such as inventory, accounts receivable, and cash on hand. This is necessary to ensure that the business has enough liquidity to meet its short-term obligations.

Question 17

The managerial accountant at Fort Story Manufacturing plant reported an annual cash inflow from its investment in a capital asset of $30,000 each year for five years.The corporation's income tax rate is 40%.
Required
Compute the five years total after-tax cash inflow from operations.

Accepted Answer

C)[($30,000 × 5 = $150,000 × (1-.40)= $90,000 after-tax cash inflow from operations.

Question 18

Which of the following is not true about postinvestment audits?

Accepted Answer

Postinvestment audits help senior management identify problems that could be quickly corrected.

Question 19

What is a challenge to managers that implement discounted cash flow (DCF)analysis?

Accepted Answer

The answer of What is a challenge to managers that...

Question 20

Which of the following is not true about capital budgeting projects?

Accepted Answer

The statement "The building projects in capital-budget projects are less complex" is not true. In fact, building projects in capital budgeting are generally more complex due to their high cost, long-term nature, and potential impact on the organization's operations.

Quiz 11: Capital Investments